Monday, May 16

Latam FX slides on impending US rate hike, Brazil stocks hit new lows


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Currencies in resource-rich Latin America

fell on Monday as the dollar rose ahead of a likely US

interest rate hike this week, while weakness in commodity prices

and disappointing economic activity data kept Brazil’s stock

market under pressure.

The dollar resumed its march towards 20-year highs

ahead of the US Federal Reserve’s meeting this week. Investors

are expecting the US central bank to hike rates by 50 basis

points when it meets on Tuesday and Wednesday.

Commodity currencies of Brazil and Chile

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fell 1% and 0.7%, respectively.

“To be blunt, it’s all about the Fed on Wednesday and the

rhetoric surrounding that and then the Fed speakers at the back

end of the week,” said Christian Lawrence, senior cross-asset

strategist at Rabobank.

“The region (Latin America) as a whole is going to be more

or less trading on the back of dollar dynamics rather than any

local idiosyncrasies.”

Brazil’s Bovespa index fell to its lowest level in

over three months, last down 1.6%, as oil prices fell on

concerns over weak economic growth in China, the world’s top oil

importer, overshadowing fears that supply might be crimped by a

potential European Union ban on Russian crude.

Heavyweights Vale SA and Petroleo Brasileiro SA

fell over 2% each.

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Data showed economic activity in Brazil resumed growth in

February, but at a slower than expected pace, while separately,

Chile’s economic activity data beat market expectations

Bolstered by an increase in service activity.

Peru’s Sol edged 0.2% lower. Data showed annual

inflation rate in the copper-producing Andean nation hit 7.96%

in April, its highest level in 24 years, as Peru grapped with

protests over rising food and energy costs linked to a

commodities price spike since Russia’s invasion of Ukraine.

On a positive note, the European Union and the South

American trade bloc Mercosur could by year’s end resolve

environmental concerns that are holding up a free trade

agreement, EU Commissioner Virginijus Sinkevicius told Reuters.

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The Mercosur bloc includes Brazil, Argentina, Paraguay and

Uruguay.

Elsewhere, the dollar gained half a percent on the Chinese

yuan in offshore markets, reaching 6.6895, just below

its strongest since late 2020.

China’s factory activity contracted at a steeper pace in

April as widespread COVID-19 lockdowns halted industrial

production and disrupted supply chains, raising fears of a sharp

economic slowdown in the second quarter that will weigh on

global growth.

Key Latin American stock indexes and currencies at 1516 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 1070.37 -0.54

MSCI LatAm 2259.43 -2.35

Brazil Bovespa 106112.56 -1.63

Mexico IPC 51719.67 0.59

Chile IPSA 4737.52 -0.86

Argentina MerVal 87488.86 -0.864

Colombia COLCAP 1571.31 0.57

Currencies Latest Daily %

change

Brazil real 5.0393 -1.92

Mexico peso 20.4150 -0.02

Chile peso 861.2 -1.39

Colombia peso 3996.6-1.14

Peru sol 3.851 -0.39

Argentina peso (interbank) 115.7500 -0.36

Argentina peso (parallel) 198 1.26

(Reporting by Bansari Mayur Kamdar in Bengaluru

Editing by Alistair Bell)

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