Latin America's currencies were mixed on Thursday with renewed concerns over the European debt crisis while lower inflation weighed on Brazil's interest rate futures. Spanish and Italian bond yields surged as investors feared efforts to control Europe's debt crisis would not be enough to ward off recession in some of the euro zone's weakest economies.
Brazil's currency, the real, strengthened 0.19 percent to bid 1.8207 per US dollar, but Chile's peso weakened 0.17 percent to bid 484.35 per dollar and Mexico's peso fell 0.53 percent to 12.861. Both Chile and Brazil posted lower-than-expected March inflation, in line with the view that Chile's interest rate hikes are on hold and Brazil will continue cutting interest rates to near record lows.
"The (Chilean) peso could have lost even more, given the inflation data," said a trader in Santiago, who spoke on condition of anonymity. Quickening inflation in either country would have bolstered bets of central bank rate hikes ahead, making the currencies more attractive for investors seeking higher yields. The real had traded weaker earlier in the day but strengthened shortly before trading finished. Chile is expected to hold its key rate at 5 percent, while forecasts show Brazil's central bank cutting its benchmark Selic rate this month to 9 percent from 9.75 percent. That Brazilian rate cut, if it happens, would be the sixth in a row.
Yields on Brazilian interest-rate futures fell on Thursday. The contract due January 2013 edged down to 8.73 percent from 8.75 percent, while the January 2014 contract's yield dropped to 9.27 percent from 9.37 percent. The weakening in the Mexican and Chilean currencies came despite news that US jobless claims fell to a four-year-low, another sign of a healing labour market.
The jobs data reinforced interpretations of the Federal Reserve's most recent meeting minutes suggesting additional monetary stimulus is not likely unless US growth deteriorates. "The stronger employment is, the less basis there is for further stimulus from the FOMC," or Federal Open Markets Committee, said IDEAglobal analyst Enrique Alvarez. "That's negative for risk."
Mexico's markets were closed for a holiday on Thursday, but the peso continues to trade abroad, as Latin America's only fully convertible currency. Markets in Brazil, Mexico, Chile, Peru and Colombia will be closed on Friday for the Good Friday holiday.
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