MEXICO CITY/SAO PAULO: Latin American currencies slipped on Tuesday on concerns China's demand for the region's commodities could flag and after reports of a possible debt payment by Brazil that could drag on the real.
Worries surfaced after the world's biggest miner BHP Billiton said it was seeing flattening Chinese demand for iron ore. China is Brazil's top foreign market and a major regional trading partner.
"China is coming back as a bit of a concern," said Win Thin, an emerging market strategist at Brown Brothers Harriman. "We know that China is slowing, and it's time for a little bit of a correction."
Brazil's real shed 0.4 percent to 1.8175 per dollar.
Earlier this month, China cut its 2012 growth target to an eight-year low of 7.5 percent sparking concern a major engine of economic growth could slow. That caused riskier assets to weaken, especially in commodity dependent Latin America.
The move last month came as Brazil ratcheted up its efforts to beat back the real's surge with a series of measures, including purchasing dollars in the spot market, that has brought a 6 percent decline in the currency.
Local newspapers reported on Tuesday that Brazilian Treasury Secretary Arno Agustin is now considering the early repayment of up to $15 billion of its external debt issues as a tool to weaken the real.
The government's demand for dollars to pay the debt is big enough to "dislocate" the market, said Nick Chamie, head of emerging markets research at RBC Securities in Toronto.
"Officials will continue to build a menu of FX measures to convince investors that they can credibly defend their USD/BRL floor," Chamie said.
Foreign investors seeking returns higher than those found in developed countries poured money into Brazil since late last year. Brazil's president blamed a "tsunami" of foreign capital for jacking up the value of the real and hurting local manufacturers.
Analysts now increasingly see Brazil's government defending a level of 1.80 per dollar, a stance that has spooked some investors and prompted analysts to look toward Mexico where the government has been much more hands off in the currency market.
"We do not expect the latest possible measures mentioned by officials to materialize until (the exchange rate) returns towards the 1.76-1.72 range," Chamie said.
Brazil's aggressive measures have caused some analysts to bet on the Mexican peso over the real due to intervention risks and a slowdown in Latin America's top economy.
In Mexico, the peso declined 0.42 percent to 12.68 per dollar after markets returned from a holiday.
The currency has been marking six-month highs since February, but it has ricocheted through a more narrow range since then and has been unable to break key levels.
Chile's peso decline 0.25 percent to bid at 484.50 per dollar.
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