Latin American currencies jumped across the board on Wednesday taking advantage of a weak dollar after the US Federal Reserve expressed caution about future rate hikes, while stocks in the region rallied as investors reduced safe-haven bets due to optimism about US-China trade talks.
Minutes from last month's Fed policy meeting showed a range of policymakers said they could be patient about future interest rate increases and a few did not support the central bank's rate increase in December 2018.
Emerging market currencies including those in Latin America were buoyed by the dovish stance from Fed with Brazil's real climbing over 0.8 percent as the dollar slid to its lowest level since October 2018.
"The dollar has come of quite significantly today giving a major boost to emerging market currencies," said Christian Lawrence, senior market strategist, LatAm FX, Rabobank.
Rising US borrowing costs had reduced the attractiveness of riskier emerging market assets in 2018, but a dovish stance since the last quarter of 2018 has helped currencies in the developing world.
"The market is currently positioned for no rate hike, but we would argue for possibly one rate hike in March 2019 and then rate cuts in 2020," said Lawrence.
Mexico's peso appreciated at its best level in nearly three months aided by a jump of 5 percent in oil prices, while Chile's peso closed at its highest level in almost five weeks supported by a rebound in the price of copper, the country's main export.
MSCI's index for Latin American stocks rose over 2 percent on trade optimism news with Brazil's Bovespa index crossing 93,000 for the first time in its history in a broad-based rally.
The Brazilian government's proposed social security reform was also in focus as it plans to introduce individual contributions into private funds to ensure the pensions of future generations and help boost growth.
Overhaul of the country's costly state pension system is a top priority for Brazil's new President Jair Bolsonaro, because it is the main cause of chronic budget deficits and a mounting and unsustainable public debt.
Stocks in Mexico hovered around two-month highs led by gains in shares of petrochemical company Alpek, while Argentina's stock market also rose sharply, led by purchases of financial stocks.
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