Latam FX fails to shake off virus, election worries

Most major Latin American currencies fell on Thursday, failing to recover from a selloff fueled by concerns about surging COVID-19 cases and uncertainty around the outcome of the US presidential elections next week.

Emerging market currencies struggled to rise in the wake of a strengthening dollar, which extended gains as worries remained about Europe's second wave of coronavirus infections and traders pricing in the possibility of Democratic candidate Joe Biden winning the US election on Nov. 3.

Brazil's real fell 0.4%, a day after the country's central bank kept its key interest rate at a record-low 2.00%, maintaining its "forward guidance" pledge to keep rates lower for longer and even the possibility of further easing, despite the recent rise in inflation and fiscal risks.

"The tone of the accompanying statement was a bit less dovish than the previous one," said William Jackson, chief emerging markets economist at Capital Economics.

"Yesterday's statement also put more emphasis on the risk of looser fiscal policy as an asymmetric (upside) risk to the inflation outlook."

In an analysis by Reuters, a Biden victory in next week's election could put the environment and human rights at the top of the country's agenda with Brazil, complicating relations with Brazilian President Jair Bolsonaro and jeopardizing trade, diplomats.

A 6% tumble in oil prices hurt currencies of crude-exporters, including Mexico and Colombia.

Mexico's peso fell 0.6%, while the Colombian peso dropped 0.2%. Mexico's currency has fared somewhat better than other Latin American units due to the country's close trade ties with the United States and analysts say a Biden win would be the most favorable outcome for the Mexican peso.

Investors awaited a central bank policy decision in Colombia on Friday, with expectations the bank will hold interest rates steady.

A Reuters poll showed expectations for Colombia's 2020 inflation rose versus last month as economic conditions began to normalize, although estimates remain far below the central bank's target.

The Chilean peso bucked the downward trend to firm 0.7% even as prices of its main export, copper, slipped on Thursday. Market participants watched as the country embarked on its path to reframe its constitution this week.

Stocks in Latin America slipped, with the MSCI's index for Latam equities falling 1%, after logging its worst day since late April in the previous session.