SAO PAULO: Latin American currencies fell on Tuesday after China's decision to devalue the yuan by nearly 2 percent fueled a sharp drop in commodities prices as well as concerns about the competitiveness of emerging market exporters.
Latin America's most traded currencies - including those of Mexico, Brazil, Chile, and Colombia - all dropped about 1 percent following the Chinese move, which raised questions about Beijing's commitment to a strong yuan as part of a strategy to stimulate domestic consumption rather than exports.
"China's unexpected currency devaluation is driving broad-based risk aversion across markets as participants consider its implications for global commodity demand, inflation, and the balance of risks to growth," analysts with Scotiabank wrote in a report.
In Brazil, a weaker yuan could hurt the competitiveness of local manufacturing exporters, Trade Minister Armando Monteiro said.
Yet analysts said such concerns seem to be exaggerated for now, as the yuan depreciation remains considerably smaller than that of other emerging economies.
In Latin America, the currencies of Mexico and Chile have weakened about 10 percent so far this year. The Colombian peso has lost nearly 20 percent while the Brazilian real has slumped 24 percent.
"Any loss of competitiveness against China from today's 'devaluation' should be limited," Neil Shearing, chief emerging market economist with London-based Capital Economics, wrote in a research note.
"Several emerging markets, notably Brazil, have seen sharp pickups in export volume growth since the start of the second quarter of this year," he added.
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