SAO PAULO: Latin American currencies weakened on Tuesday, Brazil's real testing 2 per dollar for the second straight session, as Greece headed to new elections that could harden domestic opposition to its international bailout.
Brazil's real crossed the 2-per-dollar threshold but pulled back on speculation the country's central bank could intervene in the spot market with dollar sales from its huge reserves.
"The real opened stronger but slid on news that Greece will call new elections," said Luciano Rostagno, chief strategist at WestLB in Sao Paulo.
Greece's attempts to form a new government collapsed on Tuesday, raising the prospect leftists opposed to terms of the country's bailout could sweep to victory in a June election, sparking a fresh round of the euro-zone crisis.
The news from Greece continued to weigh on riskier Latin American assets that tend to sell off when investors seek safety in currencies like the US dollar. The Mexican peso, however, traded nearly flat as some investors considered it oversold.
The peso was practically flat at 13.7220 per US dollar after losing more than 8 percent in the past two months.
The Brazilian real weakened 0.2 percent to 1.9922 per dollar, after declining to as much as 2.0038 earlier. Some investors have been pushing the real above the level of 2.0 per dollar to test the central bank's tolerance of a weaker currency that could spur inflation by raising import prices.
"We have some speculation in the foreign exchange market right now," said Reginaldo Galhardo, a manager at Treviso brokerage in Sao Paulo. "The market is wondering whether the central bank will intervene, so it is pushing the currency to 2 per dollar."
The Brazilian central bank bought dollars in the spot market from February to April, helping weaken the exchange rate from around 1.7 per dollar, which was considered harmful to exporters.
Some traders bet the central bank will intervene again if the real weakens beyond 2 per dollar. Government officials have indicated they still do not anticipate meaningful inflationary pressures from the currency at that level.
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