Latam FX rallies as US jobs data dents dollar; Colombia hit by downgrade

Emerging market currencies rallied on Friday as the dollar dropped following strong jobs data from the United States, while Colombian assets were hit by a second ratings downgrade to junk.

Brazil's real rose as much as 1.2% before trading flat, while Mexico's peso rose almost 1%. Chile's peso firmed 1.1%, while Peru's sol snapped a three-day losing streak.

US data showed nonfarm payrolls rose a more-than-expected 850,0000 in June, sending the dollar higher, but it fell back as investors digested a higher unemployment rate.

"It was strong enough but not too strong, which is exactly what (markets) wanted to see. If you got too strong a report the market could've had a negative reaction saying that means the (US Federal Reserve) can't wait two years to raise interest rates," said Darrell Cronk, CIO, Wells Fargo Wealth & Investment Management, New York.

Higher US interest rates dull the appeal of riskier emerging market currencies as it reduces the rate differential.

In Brazil, the real was last trading at 5.04 per dollar. Data showed industrial output rose for the first month in four in May, up 1.4%, but missed a Reuters poll forecast of 1.7% and only two of the four major categories - capital goods and consumer goods - saw output rise.

Meanwhile, the leader of the lower House said there is no political path to launch impeachment proceedings against Brazilian President Jair Bolsonaro. Calls for his ouster grew stronger following a probe into the handling of the COVID-19 crisis.

Bolsonaro faces elections next year, and on Thursday said he wouldn't hand over power if there is any fraud. In the run-up to elections, the real is seen depreciating to 5.10 at the close of 2021, a Reuters poll showed. A hawkish central bank has kept its carry trade value attractive so far this year.

Colombia's currency hit its lowest in nearly two months and the stock market lost 0.6%, while 2027 Colombian dollar bonds fell half a cent to a one-month low after Fitch on Thursday joined S&P in downgrading Colombia's foreign and local long-term rating to junk on deteriorating public finances.

The premium demanded by investors to hold Colombia's debt over safe haven US Treasuries jumped by 6 basis points (bps) to 256 bps - its highest since early October 2020, the JPMorgan EMBI index showed.