Weaker dollar buoys Latam FX; rate hike lifts Chile’s peso

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Major Latin American currencies rose on

Wednesday as a dollar rally on aggressive rate hike expectations

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fizzled out, with the Chilean peso getting an additional boost

from a bigger-than-expected rate increase overnight.

The Andean country’s central bank lifted its benchmark

interest rate to 10.75% from 9.75%, while raising its inflation

estimate to 11.4% from 10.8%, reinforcing bets on more hikes to

combat rising prices. The peso rose 0.9%.

“Chile is not unique in a large 100 bps rate hike – the

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market expects double-digit terminal rates in all major Latam

economies,” said Natalia Gurushina, EM economist at VanEck.

The peso saw wild swings in recent sessions after voters

overwhelmingly rejected a new progressive constitution that was

key to President Gabriel Boric’s agenda.

Peru’s central bank on Thursday is scheduled to deliver its

own interest rate decision. In July, it had raised the country’s

benchmark rate by 50 basis points to 6%, a 13-year high.

The sol edged lower in volatile trading. Weighing on

the sol was a dip in copper prices, which slid after a grim

China trade added to worries about a global economic slowdown.

The safe-haven dollar slipped 0.47%, inching lower

from a 20-year high hit earlier this week, despite the U.S.

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economy showing signs of resilience.

Emerging market currencies will find it difficult to reclaim

ground lost this year as relentless Federal Reserve rate hikes

and safe-haven demand keep the dollar ascendant, a Reuters poll

of currency strategists found.

Brazil’s real inched 0.1% higher. The currency is

expected to hover in a tight range in dollar-dominated trading

this month as Brazilians prepare to vote in the Oct. 2

presidential election, according to a poll.

Mexico’s peso gained 0.7%. The country’s automotive

production and exports rose in August from a year ago, data

showed.

Meanwhile, Argentina and the Inter-American Development Bank

agreed on Tuesday to expand financing to the country

by $400 million this year.

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Brazil’s Bovespa stock index fell 2.17% as a slide

in prices of metals and crude hit shares of heavyweights Vale SA

and state-run oil company Petrobras.

Key Latin American stock indexes and currencies at 1907 GMT:

Stock indexes Latest Daily % change

MSCI Emerging Markets 957.95 -0.76

MSCI LatAm 2132.41 0.01

Brazil Bovespa 109763.77 -2.17

Mexico IPC 45975.35 0.16

Chile IPSA 5522.81 -1.51

Argentina MerVal 140693.98 2.465

Colombia COLCAP 1214.27 -1.04

Currencies Latest Daily % change

Brazil real 5.2528 -0.27

Mexico peso 19.9960 0.61

Chile peso 884.8 0.80

Colombia peso 4396 1.77

Peru sol 3.8792 0.46

Argentina peso (interbank) 140.8000 -0.14

Argentina peso (parallel) 280 -1.43

(Reporting by Anisha Sircar, Amruta Khandekar and Devik Jain in

Bengaluru

Editing by Nick Zieminski and Richard Chang)