MEXICO CITY: Mexico's peso firmed on Tuesday, helped by optimism over US fiscal negotiations, while Brazil's real teetered near a 3-1/2-year low, awaiting signs of central bank intervention.
Mexico's peso, one of the most freely traded emerging market currencies, has whipsawed in tandem with US stocks over worries whether US lawmakers will be able to stave off impending tax hikes and spending cuts that could hobble the economy.
The Mexican peso firmed 0.29 percent to 13.0175 per dollar, its fourth session of gains.
The peso has rallied 2 percent back from a 10-week low last week, on hopes the US would avoid the "fiscal cliff," a combination of spending cuts and tax rises due to be implemented under existing law in early 2013 that may cut the federal budget deficit but also tip the economy back into recession.
Following US President Barack Obama's re-election, the peso slumped and its technical outlook deteriorated sharply, suggesting deeper losses ahead.
But the currency's rally during the past four sessions drove the cost of dollars in pesos below its 200-day and 100 day moving averages.
After its recent rally, Nomura strategist Benito Berber reckons the peso is currently pricing in about a 10 percent to 15 percent chance of failure by US lawmakers, down from about a 20 to 25 percent chance last week.
"There is at least a more amicable tone in the talks, but this is very short term," Berber said, adding the peso could slump back toward 13.50 per dollar if the market starts to bet on failure in Washington.
As the peso weakened, total bets on the Chicago exchange for a stronger peso fell to $3.7 billion last week from a record high of $5.5 billion in late September.
That still leaves a lot of investors betting on a strong peso, investors who could face stop loss levels above the peso's low last week of 13.29 per dollar.
The Brazilian real traded nearly flat at 2.0805 per dollar, just off its weakest levels since May 2009 that it hit on Friday. Currency trading was low with the local stock market closed for a holiday.
After trading in a narrow range since July, the real last week saw its steepest weekly slump since early June. The currency's tumble could push Brazil's central bank to intervene soon in the foreign exchange market, analysts said.
The Chilean peso firmed 0.4 percent, following a 1 percent surge on Monday, after strong economic data in the third quarter stoked bets that the central bank could raise interest rates. Higher interest rates attract yield-hungry investors.
Chile's economy kept expanding at a fast clip in the third quarter versus the year-earlier period, fueled by a jump in domestic demand, central bank data showed on Monday.
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