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Latam FX up on vaccine optimism, Chile's peso breaks 4-day losing streak

  • Chilean peso up after central bank leaves rates unchanged.
  • Argentina central bank lowers Leliq rate to 36%.
  • Mexican peso outperforms Latam peers for the week.
17 Oct 2020

Latin American currencies rose on Friday after Pfizer Inc said it could apply for US authorization of its COVID-19 vaccine as early as late November, while Chile's peso rose as its central bank held interest rates steady in its latest policy meeting.

News of Pfizer Inc's vaccine, which the drugmaker is developing with German partner BioNTech, comes after global markets were jolted by the halting of two high-profiled COVID-19 vaccine trials earlier in the week.

The MSCI's index for Latin American currencies rose 0.1% but was headed for a weekly decline of more than 1%.

Chile's peso rose 1%, making gains for the first time in five day after the country's central bank left its benchmark rate steady at 0.5% on Thursday, maintaining its efforts to revive the economy amid the coronavirus pandemic.

The peso was also supported by strengthening prices of copper, Chile's biggest export, as demand from China continued to improve.

Mexico's peso added 0.8%, and was set to outpace its Latam peers for the week. The country's currency has been benefiting from an economic rebound in the United States, its main trading partner.

The Argentine peso held steady after the central bank said on Thursday it will lower the benchmark Leliq rate to 36% from the previous level of 37%, while raising the reverse repo rate three points to 30%, as part of a wider push to harmonize interest rates.

"The lack of a clear and comprehensive reaction by the authorities to the notorious denachoring in expectations is creating a vicious circle and leading to a fast deterioration in the economic situation in the country," emerging markers FX strategists at Citigroup said.

Emerging market currencies are also exposed to volatility in the run-up to the US presidential election in November, with analysts pointing to a Democratic sweep as the most favorable outcome for these currencies.

The Brazilian real weakened 0.2%, the only decliner among major currencies in Latin America, as investors remained doubtful about the government's ability to fund a new fiscal program without surpassing its spending ceiling.