• Sat. Sep 26th, 2020

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EMERGING MARKETS-Latam FX drops as Wall St rout spurs dollar demand

By Susan Mathew and Ambar Warrick

Sept 8 (Reuters)Emerging market currencies fell on Tuesday as a sharp fall on Wall Street sent panicked investors into the U.S. dollar, with simmering Sino-U.S. tensions and concerns over an economic recovery adding to the mix.

Amid concerns that a recovery in oil demand could weaken as coronavirus infections flare up around the world, crude prices tanked, further pressuring petro-currencies such as the Mexican MXN= and Colombian pesos COP=, which fell about 0.7% each. O/R

In a move that could threaten its investment rating, Mexico late on Monday raised a nonbinding limit for gross debt to 70% of GDP, almost 20 percentage points above last year’s level, for the remaining four years of the term of its fiscally conservative president.

Meanwhile, the Mexican government’s 2021 spending blueprint will likely forecast revenue similar to this year’s level, or 6.1 trillion pesos ($282 billion), a senior lawmaker said on Monday.

Mexican stocks .MXX led losses among their peers for the day, while other Latin American indexes tracked a technology-led rout on Wall Street. .N

The MSCI’s index of Latam stocks .MILA00000PUS dropped more than 2%.

The dollar hit a three-week high as losses in Wall Street brewed risk aversion. USD/

Worries about a tough economic rebound from the coronavirus pandemic and simmering U.S.-China tensions after President Donald Trump again raised the idea of decoupling the U.S. and Chinese economies also sent investors to the safety of the greenback.

“Risk appetite remains weak as U.S.-China geopolitical tensions flared up again overnight. With the U.S. election only weeks away, we expect more of this to come,” said Ned Rumpeltin, European head of FX strategy at TD Securities.

“Correlations between risky assets and the dollar have started to rise sharply again. In line with this, we are seeing a further bout of dollar strength against most G10 and major EM currencies.”

The Argentine peso ARS=RASL slipped to new lows, but global ratings agency S&P upgraded Argentina’s long-term sovereign credit rating on Monday, pulling it out of default territory after the government successfully restructured over $100 billion in sovereign debt.

Coming back from a long weekend, Brazil’s real BRBY fell 1%, while Chile’s peso CLP= rose slightly.

Elsewhere, South Africa’s rand ZAR= fell as much as 1.5% after the recession-hit economy’s second quarter GDP fell more than expected – contracting by a record 51%, as a strict coronavirus-induced lockdown stalled economic activity.

Key Latin American stock indexes and currencies:

Stock indexes

Latest

Daily % change

MSCI Emerging Markets .MSCIEF

1087.78

-0.62

MSCI LatAm .MILA00000PUS

1964.35

-2.39

Brazil Bovespa .BVSP

99694.53

-1.53

Mexico IPC .MXX

36061.92

-1.57

Chile IPSA .SPIPSA

3814.84

-1.02

Argentina MerVal .MERV

45418.69

-0.596

Colombia COLCAP .COLCAP

1232.41

-0.85

Currencies

Latest

Daily % change

Brazil real BRBY

5.3575

-0.96

Mexico peso MXN=D2

21.7600

-0.65

Chile peso CLP=CL

772.3

0.28

Colombia peso COP=

3737.45

-0.73

Peru sol PEN=PE

3.5408

-0.14

Argentina peso (interbank) ARS=RASL

74.7000

-0.07

(Reporting by Susan Mathew in Bengaluru; Editing by Alistair Bell and Jonathan Oatis)

((susan.mathew@thomsonreuters.com; +91-80-6287-2704;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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