Brazil's real jumps on inflation bets, Chilean peso tracks copper

The Brazilian real rose on Wednesday as expectations of high inflation pointed to more interest rate hikes, while the Chilean peso gained on higher copper prices and a weaker dollar after falling for three straight sessions.

The real firmed 0.7% against the dollar after a survey of economists showed Brazil's 2021 inflation outlook rose to 5% for the first time and the interest rate outlook hit a new high of 5.5%, a sign that the central bank will raise rates aggressively at its next policy meeting.

The bank's rate-setting committee known as "Copom", which is set to meet on May 4 and 5, is widely expected to repeat last month's landmark 75 basis point hike, which would lift the benchmark Selic rate to 3.50%.

"The BCB (Central Bank of Brazil) has all but committed to another 75 basis point hike, and we would want to see the BCB restrain itself from shifting its tone more explicitly to the dovish side given growth dynamics," said analysts at J.P. Morgan.

"This would be positive for the Brazilian real and could lead to further outperformance, should Covid cases decline and the BCB remain on the hawkish side."

However, most other Latin American currencies gave back early gains to trade lower as rising coronavirus infections and lower oil prices outweighed a weaker dollar.

The Mexican and Colombian pesos dropped 0.1% and 0.5% respectively as lower oil prices hurt the currencies of the oil exporting countries, while rising coronavirus infections in the region weighed on risk sentiment.

Furthermore, Mexico's economy extended its decline as it shrank more than expected in February, mainly driven by weakness in the manufacturing and service sectors, the national statistics agency INEGi said.

The currency of Chile, the world's largest copper producer, gained 0.8% after falling for three consecutive sessions as copper prices soared to 10-year highs.

Chilean President Sebastian Pinera on Sunday announced the government will launch its own bill to allow citizens to draw more from their private pensions as mining unions threatening to protest if the government did not drop the bid.

At 1415 GMT, the greenback was stable after it slumped to an almost eight-week low versus major peers amid speculation that US Federal Reserve Chairman Jerome Powell will shun talk of tapering bond purchases at a policy meeting this week.

MSCI's index for Latin American currencies gained 0.4%, while stocks jumped 0.8%.