Latam FX boosted by commodity prices, stocks fall

Jan 5 (Reuters) – Commodity-linked Latin American currencies rose on Wednesday, tracking gains in oil and metal prices as investors bet on a strong recovery in demand this year.

But regional stock markets retreated, tracking losses in Wall Street as investors remained on edge over the potential impact of the Omicron variant of the coronavirus.

MSCI’s broad index of emerging market currencies (.MIEM00000CUS) added 0.1%, with Mexican , Chilean and Colombian currencies leading gains.

Strength in base metal prices pushed Chile’s peso up 1.2% to a near three-week high.

Currencies of oil exporters Mexico and Colombia rose 0.2% and 1.4%, respectively, as crude prices firmed even after OPEC+ producers stuck to an agreed output target rise for February and U.S. fuel inventories surged due to sliding demand as COVID-19 cases spiked.

Brazil’s real was flat after President Jair Bolsonaro was discharged from a hospital without needing surgery for an intestinal obstruction. read more

Bruno Mori, an economist and financial planner at Planejar, said upcoming presidential elections in Brazil and recent pressure from public servants for salary readjustments were causing volatility in the real.

The currency had lost more than 6% in 2021, amid increased concerns over stretched fiscal spending and rising inflation.

Peru’s sol traded flat in cautious trade after the country’s attorney general opened a preliminary investigation of leftist President Pedro Castillo on allegations of collusion and influence peddling in cases related to public works contracts. read more

Broader emerging market currencies retreated, while the dollar slightly pared its declines after minutes of the Federal Reserve’s recent meeting reaffirmed its hawkish stance for 2022.

Fears of rising U.S. interest rates this year saw emerging market currencies mark a muted start to 2022. But stocks had fared slightly better, given that equities are less exposed to changes in lending rates.

The South African rand rose more than 1% in its best day in over a month, taking support from higher gold prices, while Russia’s rouble slipped more than 1% despite rising oil prices as geopolitical worries weighed.

Against a stronger euro, Hungary’s forint rose 0.3%, hitting a one-month high with investors pricing in more rate hikes after the central bank pledged more tightening, saying that while headline inflation had peaked in November, core inflation was set to rise further.

Key Latin American stock indexes and currencies:

Reporting by Susan Mathew in Bengaluru;
Editing by Tomasz Janowski and Jonathan Oatis

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