Latin American currencies srengthened on Monday, bucking gloom in emerging markets, with Brazil's real gaining nearly half a percent as investors cheered progress in the government's pension reform bill.
The real firmed to 3.8057 per dollar after Brazilian House speaker Rodrigo Maia said on Saturday he expects the lower house of Congress to begin voting on the bill on Tuesday.
A special pension reform committee in Congress passed the basic text of a bill that aims to generate savings of around 1 trillion reais ($264 billion) over 10 years, shore up public finances, and spur investment and economic growth.
Waldery Rodrigues, the special secretary to the Economy Ministry, said the bill's approval will boost gross domestic product growth by at least 0.4-0.5 percentage point a year.
The main Bovespa stock index edged higher to extend its record run, helped by gains in miner Vale SA, which rose 1.2% as Dalian-traded iron ore prices jumped as much as 2.5% on expectations that demand for the steelmaking raw material will be strong.
The Mexican peso gained about 0.5%, while the Chilean peso CLP and the Colombian peso also rose against the dollar.
The gains follow a weak session for emerging currencies on Friday after strong US jobs numbers cooled expectations the Federal Reserve will cut interest rates by 50 basis points in its July meeting, supporting the dollar.
"We think it'll (the weakness) be short-lived and recommend buying dips, particularly in EM currencies," Morgan Stanley analysts wrote in a note. "Even if the Fed only cuts 25bp (MS expecting 50bp) but provides dovish guidance, then we'd expect the bid for EM currencies to remain."
Investors are looking ahead to Fed Chairman Jerome Powell's semi-annual testimony to the US Congress on July 10-11 for clues on the direction of monetary policy.
Markets in Argentina were shut for a public holiday on Monday and Brazilian exchanges will be closed on Tuesday for a regional holiday.