Latam FX bounce after soft start to the week, Brazil real pressured

Most major Latin American currencies traded higher on Tuesday, as the dollar lost footing ahead of next week's US presidential election, while Brazil's real fell for the third straight day.

The real fell 0.5%, pushing the MSCI's index for Latin American currencies 0.1% lower.

Worries about the Brazilian government's ability to fund a new fiscal program have persisted, despite an assuring tone from the country's Economy Minister Paulo Guedes.

Investors also awaited a policy meeting of Brazil's central bank's rate-setting committee, Copom, on Wednesday. The bank is expected to leave its benchmark Selic rate on hold at a record low of 2.00%.

Strategists at Rabobank said, "it is very likely that the Copom will remain on hold until 21Q3, and they should only start hiking the Selic rate in 21Q4, bringing it to 3.0% by end-2021."

Latin American currencies started the week on the back foot on Monday but Chile's peso rose 0.6%, extending its winning streak to an eighth day.

Higher copper prices on Tuesday helped support Chile's currency, although focus remained on county's beginning the long process of drafting a new constitution after a vote in favor of the project by citizens.

In a referendum on Sunday, 78% of voters in the world's top copper producer backed constitutional overhaul, a stinging rebuke of the constitution dating from the 1973-1990 dictatorship of Augusto Pinochet.

The US dollar weakened against a basket of currencies ahead of the results of the US elections in the coming week, while fears remained of a second wave of coronavirus infections.

Mexico's peso rose 0.2% against the dollar, with figures showing the country's trade surplus with the rest of the world shrank in September as imports picked up faster than exports during a burgeoning recovery from the coronavirus pandemic.

The Colombian peso edged 0.2% higher as oil prices regained some lost ground, while focus remained on the country's central bank meeting later in the week.

The Argentine peso was flat. Goldman Sachs analysts say Argentina was among those emerging market sovereigns with high probabilities of distress. It defined distress as ranging from default to distressed debt exchanges.