Brazil's real bucks Latam gloom on hawkish central bank minutes

Most Latin American currencies dropped against a rallying dollar on Tuesday, with Chile's peso losing over 1% to hit its lowest this year, while Brazil's real was supported by the possibility of large interest rate hikes.

Brazil's real erased early losses to trade up 0.2%, as central bank minutes showed a 100 basis point hike could be coming at the next meeting to keep inflation in check. This would be the monetary authority's fourth straight hike.

Liam Spillane, head of EM debt at Aviva Investors, said in an interview he sees an upside in Brazil's real and said its recent outperformance can continue at this level as central bank policy should support the currency in coming months.

The dollar stayed supported ahead of US Federal Reserve Chairman Jerome Powell's speech at 2 p.m. ET, which will be closely watched for clues to the central bank's monetary policy after differing stances by some members following its last meeting.

In his prepared remarks Powell said inflation has "increased notably in recent months" but regarded the recent jump as likely to fade.

Falling commodity prices also weighed.

Copper struggled to hold gains, weighing on top producer Chile's peso, while Mexico's peso looked to give back Monday's strong gains, down 0.4%.

On Thursday, Mexico's June first-half inflation followed by a central bank meeting, will be in focus. A Reuters poll showed annual inflation likely slowed but still stayed well above the central bank's target range, reinforcing forecasts that benchmark interest rate will remain on hold for the rest of 2021.

Among stocks, Latin America's biggest power utility Eletrobras hit record highs before retreating, after a Lower House approval of a bill for its long-pending privatization left just one step more - the President's signature - for its implementation.

The privatization will be the biggest in Brazil's history, with proceeds from the sale potentially reaching 100 billion reais ($20 billion), the Economy Ministry said on Tuesday.

Brazil's Bovespa index lost 1% to hit one-month lows, led by financials. Most other regional peers also fell, tracking a choppy session on Wall Street.

Cryptocurrencies have recently gained traction among some countries in the region. While El Salvador last week announced plans to use bitcoin as a parallel legal tender alongside the US dollar, in Venezuela, cryptos are traded by a service that helps non-residents send remittances.