Mexican peso slides on record GDP contraction; Brazil's real outperforms

Mexico's peso fell on Thursday after data showed Latin America's second biggest economy contracted by double digits in the second quarter, while a better economic outlook for Brazil saw its currency outperform.

Preliminary figures from the INEGI national statistics agency showed Mexico's gross domestic product shrank 17.3% in the second quarter from the previous three months, the sharpest drop on record. The peso weakened 0.5% against the dollar.

With Mexico still struggling with its coronavirus outbreak, and the US recovery seemingly losing steam, the rebound in Mexico's economy will be slow over the coming quarters, said Nikhil Sanghani, assistant economist at Capital Economics.

Sanghani also said the data bolsters bets for the Mexican central bank to continue its easing cycle. "We expect a total of 100bp of further rate cuts this year, including a 50bp reduction at the central bank's next meeting in August," he said.

The dollar fell after US President Donald Trump suggested delaying presidential elections in November, adding to uncertainty amid a historic contraction in US economy in the second quarter as the COVID-19 pandemic shattered consumer and business spending.

For Latin America, the coronavirus crisis could set back the region and the Caribbean by a decade as countries endure faltering economies and rising poverty, the UN economic commission for the region and the World Health Organization said.

While currencies in other parts of Latin America were firmly in the red, Brazil's real rose 0.3% even as the country set daily records on Wednesday for new COVID-19 cases and deaths.

Brazil's Economy Ministry on Thursday lowered its 2020 public sector deficit and national debt outlook, reflecting a less severe fall in the economy this year than previously anticipated.

The Colombian peso dropped as oil prices declined, and as a Reuters poll showed Colombia's economy will have suffered the worst contraction in its history in the second quarter because of fallout from a coronavirus quarantine.

In Argentina, the government is considering pushing back a deadline for creditors to respond to its foreign debt restructuring proposal until mid-to-late August, a source close to the negotiations told Reuters on Wednesday.

The MSCI's Latin American stocks index fell 1.5%, with Brazil's Bovespa off 0.8% and Santiago shares off 1.4%.

Brazilian car rental company Localiza jumped almost 11% after it said it expects profit margins to recover by September.