SAO PAULO: The Brazilian real weakened about 1 percent on Monday as the central bank intervened to offset possible dollar inflows stemming from US stimulus measures, while the Mexican peso fell slightly after closing on Friday at a more than five-month high.
Latin American currencies still looked poised to appreciate after last week's decision by the US Federal Reserve to launch a third round of its bond-buying program. The move is likely to flood emerging markets with dollars, driving exchange rates higher and potentially hurting the region's exports.
In Brazil, the government has so far been able to dodge the effects of the Fed's measures by stepping up intervention in the foreign exchange market. In less than one week, the central bank has sold about $5.7 billion worth of reverse currency swaps, derivative contracts that mimic the purchase of dollars in the futures market.
The swaps were sold in four separate auctions, whenever the real strengthened toward the level of 2 per dollar. The latest of them, conducted by the central bank this morning, drove the currency about 1 percent weaker to 2.0304 per dollar, within the narrow range of 2.0-2.1 units per dollar the it has been trading since early July.
"What's important is that the central bank gave a warning sign and markets are observing it," said Italo dos Santos, a currency specialist with Icap brokerage in Sao Paulo.
"The market was very quiet, with small volumes, and that attracts speculators. The central bank's goal is to provide liquidity, driving away the speculators and ensuring a functional market," he added.
In Mexico, the peso weakened 0.3 percent to 12.7839 per dollar as investors took a breather after driving the currency to its strongest level in more than five months on Friday.
The Mexican peso has been driving gains in Latin America as investors consider the Mexico's central bank as the least likely to intervene in currency markets. The bank is committed to a free-floating currency and a stronger peso could also help policymakers fight a recent spike in inflation.
The Chilean markets are closed for a national holiday and will reopen on Thursday.
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