Latam FX pares gains on uncertainty around US-China trade

Latin American currencies firmed on Monday on hopes of a Sino-US trade deal but pared some gains after a report that the mood in China was "pessimistic" about an impending resolution to the dispute.

An index of Latin American currencies rose as much as 0.4% to a one-week high after Chinese state media said over the weekend that two sides had held "constructive" trade talks.

But CNBC reported on Monday that the mood in Beijing was "pessimistic" because of US President Donald Trump's reluctance to roll back tariffs.

"We saw the same dynamics in May where the two sides got really close and then the talks completely broke down, but right now the stakes are too high, especially for the US," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.

The report also tempered stocks globally, which were earlier lifted by an unexpected decision by China's central bank to trim a key interest rate for the first time since 2015, a signal to markets that it was prepared to step in to prop up an ailing economy.

Latin American currencies were mixed, with the Brazilian real up about 0.3%, but the Mexican peso and Colombian peso easing 0.3% and 0.7%, respectively, against a slightly weaker dollar.

Brazilian interest rates are expected to be cut to a new low of 4.25% by the end of next year, according to a central bank survey of economists, which also showed inflation drifting further below the monetary authority's target.

The Chilean peso fell slightly after firming nearly 4% in the previous session as lawmakers agreed to hold a referendum to overhaul the country's dictatorship-era constitution.

The currency had tumbled to a record low of 807.60 to the dollar last week following a month of anti-government protests that have left more than 20 dead and wreaked billions in damages to public and private infrastructure.

"There were worries about where these protests were going and this a constitution from 1980, so you could say it is due for an update, but there is still uncertainty about what the change will entail," Thin said.

Brazil stocks rose about 0.4%, led by a 5% gain for protein producer Marfrig Global Foods SA, which said it had raised its stake in US meatpacker National Beef Packing Co to 81.7% from 51%. Financial markets in Mexico and Argentina were closed because of a local holiday.