Latam FX rise as dollar steadies; Mexican peso shines

Mexico's peso jumped as much as 2.2% on Wednesday, and most other Latin American currencies erased session losses as the dollar pared gains, with hopes of conservative spending in Brazil bolstering its currency.

The greenback gave up gains it had made after a chaotic US presidential debate. It fell against most currencies as risk sentiment got a lift after US government officials expressed hope that another stimulus package could be passed to help ease the economic impact of the coronavirus-induced recession.

The peso more than made up for losses over the last three sessions and was poised for its best session in three weeks. While it is on track to post its best quarter this year, the impact of rising coronavirus cases on a battered economy looms large.

Brazil's real gained 0.4% after Economy Minister Paulo Guedes said the government is examining expenditures in order to avoid breaking the nation's so-called "fiscal ceiling," emphasizing that the payment of sovereign debt will not be put at risk by a proposed welfare program.

Official figures showed national debt rose to a new record of 88.8% of gross domestic product and the public sector primary deficit in the 12 months to August, excluding interest payments, widened to 8.5% of GDP.

"We expect the monthly fiscal deficit to... (converge) to our end-2020 forecast of a 948 billion reais deficit or 13.7% of GDP," said Citigroup strategists in a note.

They added that in case the Congress drops President Jair Bolsonaro's veto to extend payroll tax exemptions for 17 sectors next year, public spending would increase in 2021 by around 10 billion reais, surpassing the spending cap.

The real is among the worst-performing emerging market currencies this year, down close to 30%. On the quarter, it is set to lose around 3%, lagging most of its regional as well as broader emerging market peers.

Argentina's peso was flat a day after data showed the country's current account surplus improved significantly in the second quarter.

While the data is good news, the underlying drivers behind the surplus - a sharp recession an capital controls - are negative, said Morgan Stanley economists in a note.

They expect Argentina's current account to remain in surplus territory especially given the recent tightening of currency controls.

Stocks in the region rose, in line with Wall Street, with Chile's IPSA posting its best day in three months, while Argentina's Merval extended gains to a seventh straight session.

Mexican shares hit four-week highs, while Brazil's Bovespa came off three-month lows.