Brazil's real rises ahead of c.bank meeting, rest of Latam trails

The Brazilian real traded higher on Wednesday as investors awaited a statement from the central bank on the direction of monetary policy later in the day, while most other Latin American currencies traded in a tight range.

The central bank's rate-setting committee - Copom - is expected to keep the Selic rate at 2.0%, a record low, first set in August as the initial COVID-19 wave wreaked havoc on Brazil's already weak economy.

According to a Reuters poll, Copom will emphasize the need for policy normalization in response to quickly developing inflation pressures.

Brazil's real strengthened 0.6% against the dollar as bets grew for the central bank's policy guidance to needle decidedly in a hawkish direction.

Melanie Fischinger, FX and emerging markets analyst at Commerzbank says she expects the normalization of interest rates to be implemented earlier than so far assumed, most likely at the end of the second quarter.

"The other important factor is fiscal policy... any comments of this nature in today's statement will attract particular attention, and an imminent start of rate hikes would certainly support the real."

Risk assets across the globe gained on hopes of a bumper US fiscal package as President-elect Joe Biden gears up to take office later in the day.

The Chilean peso rose 0.4% as prices of its main export, copper, pushed higher on optimism over US stimulus.

The country has a busy political calendar this year, starting with the drafting of an entirely new constitution, comprised of 155 members elected by the public in April after months of protests rocked the country in 2019.

Mexico's peso added 0.2%, while the Colombian peso was 0.5% higher.

The MSCI's index of emerging market stocks rose 1% to a record high and with global interest rates still at record lows, and with more stimulus on the way, the prospects for emerging market risk assets remain bright.

Among other parts of Latin America, the International Monetary Fund (IMF) said on Tuesday it had approved a $2.7 billion line of credit for Panama to address the coronavirus pandemic.