Latin American currencies clock best week in two months

NEW YORK: A gauge for Latin American (Latam) currencies logged its biggest weekly gain in about two months on Friday, with Brazil’s real at the helm after a bruising week for the dollar, while stocks across the region hit three-week highs on news of stimulus in China.

The MSCI’S index for Latam FX jumped 3.6% for the week.

This was its first weekly rise in five weeks and the best performance since late March, as the greenback lost some shine through the week following a month-long rally.

The MSCI’S index of Latam stocks rose 5.7% last week.

Brazil’s real firmed to 4.8 to the dollar, registering weekly gains of 3.7% supported by a steady rise in commodity prices as well as talk of more monetary policy tightening.

Buoying most currencies and stocks in the region was news that China lowered the fiveyear loan prime rate by 15 basis points to 4.45%.

Further, its securities regulator announced measures to support virus-hit sectors via capital markets, easing some fears around the impact of lockdowns and an economic slowdown.

“The fact that China is stepping up is a major boost for any Latam country because their economies are going to be based off of the idea that the globalised system is revised,” said Juan Perez, director of trading at Monex.

Emerging markets, especially those in resource-rich Latam, are heavily dependent on China for its demand for raw materials, industrial metals and other commodities.

Colombia’s peso jumped 1.6%, clocking its best week in over 17 months.

Leftist presidential candidate Gustavo Petro, a former guerrilla, held a big lead ahead of the country’s May 29 vote, a poll showed, though support for centre-right rival Federico Gutierrez ticked up.

Mexico’s peso and Chile’s peso added weekly gains of 1% and 2.7%, respectively.

Chile’s currency has risen nearly 3% since the country’s central bank hiked interest rates by 125 points to 8.25% earlier this month.

The country is also amidst a political upheaval that has resulted in the drafting of a brand new constitution.

“Some of the doubts over Chile’s political system have eased after the Constitutional Convention completed a draft of the new charter,” said William Jackson, chief emerging markets economist at Capital Economics.

“But political risks remain high for now, which may keep the Chilean peso on the back foot in the coming months.”

Elsewhere, Russia’s rouble hit a seven-year high against the euro, which analysts attribute to European Union countries preparing to pay Russia for gas and capital controls imposed by Moscow.

Meanwhile, Turkey’s central bank is likely to hold its policy rate at 14% this week despite an expected further rise in inflation after it hit 70% last month, a Reuters poll showed.

The bank has been reported to have said that the increase in inflation in the recent period has been driven by rising energy costs resulting from geopolitical developments, the temporary effects of pricing formations that are not supported by economic fundamentals, and strong negative supply shocks caused by the rise in global energy, food and agricultural commodity prices.