Latam FX dips, Chile's peso gains on higher copper prices

Rising COVID-19 cases and weak economic data weighed on Brazil's real and Mexico's peso on Monday, while Chile's currency rose as copper prices were pushed up by bets that more stimulus would help global demand recover.

Mexico's peso dropped 0.5% as data showed Mexican automotive production and exports fell in January. But a separate reading showed the country's consumer confidence improved slightly.

Still, the rapid spread of the virus in the country has cast doubts over its economic prospects this year.

The real was flat to the dollar as cases crossed 9.5 million in the country, while deaths moved past 230,000. The country is the third-worst stricken by the pandemic in the world, behind India and the United States.

But economic trends appeared to be improving in Latin America's largest economy. Brazil's 2021 inflation outlook rose to its highest in almost a year, coming closer to the central bank's target.

The country's Economy Minister Paulo Guedes also flagged possible tax cuts as an economic recovery picks up this year.

A report said the country was also considering a fresh round of emergency cash transfers to millions of poor and vulnerable people, totaling about $1.1 billion a month.

"There is a growing sense among local market participants that additional social spending could help sustain economic growth in Q1/21, amid rising concerns that the country will slip back into recession," economists at TS Lombard wrote in a note.

"But there is also a consensus that raising social spending without approving other fiscal reform would send a negative signal to the market."

Most Latam currencies were coming off strong gains last week, as risk appetite improved on bets that a bumper US stimulus package would be passed this month. But they still lagged their broader emerging market peers due to relatively higher infections and slower vaccine rollouts.

The International Monetary Fund said Latin American and Caribbean economic activity will not return to pre-pandemic levels of output until 2023 and GDP per capita will catch up only in 2025, citing a failure to contain infections as one of the reasons.

Chile's peso was among the few gaining Latam currencies, rising 0.2% as the prices of the country's top export- copper- rose on optimism over improving Chinese and US demand.

Central bank data showed Chile's copper exports surged 9.3% in January, as the value of the shipments was buoyed by rising copper prices.

Latin American stocks lagged their global peers, with the MSCI's Latam index dropping 0.4% in early trade.