Brazil's real strengthens, Mexico's peso up

Brazil's real strengthened on Friday after data lent optimism to the country's growth prospects, though central bank intervention threatened to limit the currency's future gains. Retail sales in Brazil rose more than expected in January, pointing to strong domestic demand and a recovery in the business cycle this year after growth in the region's largest economy fizzled at the end of 2011.
"I think investors are somewhat more at ease with the story in Brazil after seeing these figures," said IDEAGlobal Analyst Enrique Alvarez. The real closed bidding 0.66 percent stronger at 1.8088 per dollar even after the central bank launched an auction to buy US dollars as part of its efforts to limit the strength of the local currency.
The real has weakened about 5 percent since the central bank waded back into the spot market in early February for the first time since September. Brazil's government is committed to protecting nascent industries that are made less competitive by a strong real in what it calls a global "currency war."
Finance Minister Guido Mantega said on Thursday intervention would continue despite a weaker real and the finance ministry's No 2 official said on Friday the currency remains overvalued. "The authorities appear to have had more success in weakening the real this time around," London-based Capital Economics Economist Neil Shearing wrote in a research note to clients. He sees the real ending 2012 at 1.9 per dollar.
Mexico's peso weakened as much as 0.5 percent after data from its top trading partner, the United States, showed a decline in new US single-family home sales. "This is pretty minor data and the US is generally seen as doing OK - the changing outlook is very much the China story," said Win Thin, currency strategist at Brown Brothers Harriman in New York.
Latin America's currencies lost ground for much of last week after a series of disappointing reports from China cast doubt on the Asian giant's future appetite for Latin America's raw materials, possibly slowing regional growth. The Chilean peso was unable to break resistance at the 490 pesos per dollar level and closed 0.04 percent weaker on Friday to bid at 488.90. Chile's currency lost 1.35 percent last week as the price of the country's top export, copper, dropped. Mining giant BHP Billiton said last week iron ore demand in China was flattening while data on Thursday showed a decline in Chinese factory activity for the fifth month.