Markets

Brazil real leads Latam FX lower as coronavirus cases rise

  • Brazil real hits lowest level since May 25.
  • Real to lag peers in the near term on political risks –analysts.
  • Chile's peso falls for third straight day.
Published August 18, 2020

The Brazilian real hit its lowest level in nearly three months on Monday, while Mexico's peso broke a four-day winning streak as the number of cases of coronavirus surged in Latin America, while the region's main stock indexes traded mixed.

Brazil on Sunday registered 620 new deaths while the total number of infections were well over 3.3 million. In Mexico, the cases tally stood at 522,162.

Brazil's real lost 1.5% against the dollar.

FX strategists at JP Morgan said political uncertainty in Brazil will see the real underperforming regional peers in the near term. Last week two more cabinet secretaries resigned from the government, unhappy with the pace of reforms.

A central bank survey, however, showed Brazil's 2020 economic growth outlook year brightened for a seventh week in a row, now expected to contact only 5.5% compared with the previous 6.5% estimate.

Mexico's peso fell 1%. Late on Friday, Mexico's central bank Deputy Governor Jonathan Heath said there is still room to cut the benchmark interest rate but the decision will depend on how economic indicators evolve.

The central bank had cut the key interest rate by 50 basis points to 4.5% last week - the lowest level in four years.

Chile's peso extended losses to a third straight session, even as prices of its main export good, copper, rose.

Investors this week will be watching for minutes of the US Federal Reserve's previous meeting or any clues about an anticipated shift in the policy outlook.

Some relief, meanwhile, came from a scheduled review of a Phase one US-China trade deal being postponed, leaving the deal intact for the time being.

Among stocks, Brazil's Bovespa slipped 2.4% as financial heavyweights dragged. Mexico's IPC index notched over two-month highs before retreating.

"Outside of China, the rest of emerging markets (stocks) do not appear as attractive," said equity strategists at JP Morgan. "The relative performance of EM vs developed markets is closely tied to EM currencies, which has struggled to pick up despite the recent dollar weakness."

Argentina and Colombian markets were closed for holidays. Argentina's government on Sunday officially unveiled its amended bond restructuring offer and said creditors would have until Aug. 28 to approve it. It filed the offer to the US Securities and Exchange Commission on Monday.

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