Mexican peso drops 1% to lead losses in Latam as COVID-19 cases surge

Mexico's peso dropped 1% to hit a two-month low on Friday, leading declines across Latin American currencies as the dollar held at 9-1/2 month highs amid global growth worries stemming from rising COVID-19 cases.

The peso extended losses to a fifth straight session, taking its decline so far this week to 2.3% - its worst in two months.

Mexico's daily COVID-19 cases hit record highs on Wednesday of nearly 29,000, as it battles a new wave of the pandemic. The official death toll, which officials say underestimates the real numbers, passed 250,000, one of the highest worldwide.

The United States on Friday extended the closure of its land borders with Canada and Mexico to non-essential travel such as tourism through Sept. 21 and airline officials say it will be at least weeks and potentially months before restrictions are lifted.

Currencies of resource-rich Latam economies were all set to end the week in the red following a bruising week for commodities.

Brazil's real falls; Mexican, Peru central bank decisions on tap

"Falling commodity momentum remains a headwind, and we stay in relative value territory in Latam FX going into the final stretch of the tapering discussion," said Citi strategists, referring to the US Federal Reserve's hint that it may start tapering stimulus this year.

"We continue to believe that inflation pressures in emerging markets may be transitory, but receivers have to wait for less hawkishness from the regional central banks to receive."

Crude exporter Colombia's peso and top copper producer Chile's currency lost 0.7% and 1.3%, respectively, on the week. Oil was set for a 7% weekly drop, while the red metal was on track for the largest weekly drop since June.

Iron ore exporter Brazil's currency hit 3-1/2 month lows as the steel-making ingredient marked its fifth consecutive weekly decline, down 8% since last Friday.

The currency was down 3.7% this week, while Brazil 10-year bonds languished at near 3-year lows as fiscal and political headwinds gathered ahead of 2022 elections.

Emerging market debt registered the first inflow in four weeks at $200 million in the week to Wednesday, BofA said in its weekly note. In equities, EM funds had the largest inflows since April at $4.3 billion.

While most Latam bourses tracked Wall Street indexes higher on Friday, Brazil's Bovespa index was pulled 0.4% lower by a more than 1% decline for oil major Petrobras.

The Bovespa was set for its worst week in six months, down nearly 4%, while Mexico's IPC index was on track to break a five-week winning streak.