Chilean peso at over 4-month high on copper gains, Peru's sol stable

Strength in copper prices supported Chile's peso and Peru's sol, with the latter stabilizing after steep losses on expectations for a socialist government, while other Latin American currencies traded sideways.

Chile's peso led gains in early trade, rising 0.7% to a more than four-month high as copper prices neared 10-year highs on optimism over recovering global demand.

World no. 2 copper exporter Peru's sol also rose, recovering from its worst session in more than five months, after the first opinion poll ahead of a presidential run-off election in June indicated a win for socialist candidate Pedro Castillo.

Mexico's peso hovered around three-month highs, with analysts citing the currency having prime conditions for carry trades, along with EM peer South Africa's rand.

The Mexican economy shrank in March due to the pandemic but is expected to rebound as a US recovery picks up.

Sentiment over emerging market assets was helped by major investment bank Morgan Stanley going bullish on currencies and bonds, citing stability in US yields.

BlackRock, the world's largest asset manager, espoused a similar stance on Monday.

Emerging market assets have come under pressure this year as expectations of policy tightening by the Federal Reserve pushed up US Treasury yields.

But continued dovish signals from the US central bank doused this notion, resulting in large drops in yields and improving capital flows into emerging markets.

Latin American markets have lagged their peers due to a damaging COVID-19 resurgence in the region, and were mostly trading flat to lower for the day.

Brazil's real rose 0.4%, hovering just below a near one-month high, as the 2021 budget was sent to President Jair Bolsonaro for approval after an initial delay.

But the rapid spread of COVID-19 in the country has dulled its economic outlook, with the government ramping up spending to what has been perceived as unsustainable levels to offset the pandemic's economic impact.

"The gradual economic recovery continued in February, but the resurgence of the pandemic in March has reversed that trend. Activity data for retail sales and the services sector showed some resiliency in February, but there is little doubt that this trend was reversed by the virus resurgence in March," analysts at TS Lombard wrote in a note.

They also expect the Brazilian central bank to hike interest rates steeply in the first half of the year - a move which could support the real.

Latin American stocks retreated in early trade, with the MSCI's index of regional stocks coming off a two-month high.