Brazil's real weakens ahead of expected rate cut; Mexican peso snaps losing run

Most Latin American currencies rose against a weaker dollar on Wednesday, while Brazil's real fell ahead of what is expected to the central bank's final interest rate cut in its one-year long easing cycle.

The real fell 0.3% against the dollar as Copom, the central bank's rate-setting committee, is set to cut its key interest rate to a record low of 2.00% at market close in a final 25 basis points move to cushion an economic collapse.

"Following the massive collapse in growth caused by COVID, the current economic indicators in Brazil are signaling an economic recovery, but pre-crisis levels are still a long way off," said Alexandra Bechtel, forex and emerging markets analyst at Commerzbank.

"The bar is set high for further rate cuts, in particular as more stable framework conditions (budget deficit etc.) would be required for lower rate levels."

Economic activity in Brazil contracted in July for a fifth straight month, a survey showed, a result of the dominant services sector still struggling under the weight of the COVID-19 crisis.

Economy Minister Paulo Guedes on Wednesday said Brazil may reduce its new VAT tax to as much as 8% if the proposed 12% rate ends up increasing the country's overall tax burden. The VAT proposal was the first part of the government's wider tax reform agenda.

Sao Paulo listed stocks snapped a four-day losing streak on a commodity boost as oil and metal prices soared.

Even as Latin American assets recovered sharply from March lows, economists at Scotiabank say it will take several quarters for the economies to return to pre-COVID-19 levels of economic activity even with strong growth into 2021.

The heavily controlled Argentine peso was range-bound a day after the country reached a deal with creditors to restructure $65 billion of sovereign debt. The Merval stock index continued to fall after its strong surge post the deal.

Argentina's June industrial production fell at a much slower pace than the previous month and lesser that analysts expectation, data showed on Wednesday.

Crude exporter Mexico's peso rose for the first time in seven sessions, gaining more than 1% as the greenback extended declines.

Data on Wednesday showed nearly 5 million people returned to work in Mexico in June, though formal unemployment continued to rise.

Mexican stocks added 1.2%, as silver miner Peñoles , soared 13.7% on rising prices of precious metals.