Mexican peso, real up as Saudi output seen rebounding

• The Brazilian real traded up 0.07pc at 4.0765 per dollar, while Mexico's peso strengthened by as much as 0.47pc to trade at 19.3489 per dollar.
• The central bank is expected to cut interest rates for the second time this year.

Brazil's real turned positive and the Mexican peso hit a session high on Tuesday after Saudi Arabia's energy minister said the kingdom will restore its lost oil output by the end of September after a weekend attack disrupted 5pc of global output.

In response, oil prices slumped about 7pc, while main stock markets in Brazil and Mexico rose sharply as the latest news eased worries about a supply shock in oil markets hurting global growth.

Oil prices surged 20pc at one point on Monday, prompting investors to flee riskier assets but helped stocks in Colombia, whose top export is oil.

The Colombia SE General index was back down 0.3pc, while the country's currency weakened 0.6pc against the dollar.

Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday the kingdom had managed to restore oil supplies to the levels where they were prior to the weekend attacks by drawing from oil inventories.

The Brazilian real traded up 0.07pc at 4.0765 per dollar, while Mexico's peso strengthened by as much as 0.47pc to trade at 19.3489 per dollar.

However, currencies moved in tight ranges ahead of the US Federal Reserve's two-day policy meeting set to conclude on Wednesday.

The central bank is expected to cut interest rates for the second time this year.

Focus was also on Brazil's central bank meeting this week. Officials are widely expected to cut record-low rates by 50 basis points in order to shore up Latin America's largest economy.

"Low inflation, subdued activity and continued fiscal consolidation progress bode well for a 50bp policy rate cut this week," Gustavo Rangel, chief economist, Latam at ING said in a note.

"An additional 50bp cut that brings the SELIC rate (overnight rate) to 5pc in October is also likely, but we expect a mid-cycle pause after that."

Brazil's Bovepsa gained 0.7pc as banking shares jumped. Airlines such as Gol Linhas Aereas Inteligentes and Azul SA, which took a hit on Monday on worries about higher fuel costs, rose 5.8pc and 3.5pc respectively.

The MSCI's index of Latin American stocks jumped 0.7pc.