Brazil real lags Latam peers ahead of expected pause in c.bank policy

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Brazil’s real fell behind its Latin

American peers on Wednesday amid expectations of its central

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bank holding interest rates steady, while most other

commodity-linked currencies rose as a softer dollar boosted

copper and oil prices.

Brazil’s real shed over 1% as its central

bank is seen keeping rates unchanged at 13.75% for the second

straight time, as core inflation continues to run above the

Banco Central do Brasil’s target.

On the political front, a Reuters poll showed that

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Brazilian presidential candidate Luiz Inacio Lula da Silva was

leading over President Jair Bolsonaro ahead of a runoff vote on

Oct 30.

Analysts at Goldman Sachs said Brazil is “the most

compelling opportunity” across emerging market investments.

“The key challenge for the ‘next Brazils’ comes from

currency markets: elevated volatility in the Korean Won

and–especially–the Chilean Peso continues to push against the

durability of any dovish monetary policy shift,” they wrote in a

note.

Emerging market central banks have reached a mature

stage in their monetary policy tightening cycles amid few signs

of inflation cooling, compared to developed world counterparts

which are still aggressively raising rates.

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The Mexican peso slipped 0.3% after Reuters reported

that a Bank of Mexico board member cautioned against increasing

monetary policy rate to “excessively” restrictive levels as the

economy remains weak, saying that the bank might be nearing the

end of its rate-hiking cycle.

Meanwhile, a rise in copper prices lifted the Chilean peso

by 1.7%, up for the second straight day after losing

nearly 6% in nine days until last week. Copper producer Peru’s

sol also added 0.7%.

Oil exporter Colombia’s peso gained nearly 2%

tracking soaring oil prices, bolstered by record U.S. crude

exports and as American refiners operated at higher-than-usual

levels for this time of year.

Aiding a bounce in commodity prices was the dollar index

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falling over 1% after weak U.S. economic data suggested

that the U.S. Federal Reserve’s tight policy to tame inflation

is beginning to bite and spurred hopes of less hawkish rate

hikes.

“We definitely see another revival of some Fed pivot hopes.

Every time we are seeing the smallest signs that the Fed may be

getting a little less hawkish – the market jumps at it,” said

Witold Bahrke, senior macro strategist at Nordea Asset

Management.

Key Latin American stock indexes and currencies at 2000 GMT:

Stock indexes Latest Daily %

change

MSCI Emerging Markets 854.15 1.14

MSCI LatAm 2174.06 -1.18

Brazil Bovespa 112870.95 -1.53

Mexico IPC 49229.15 1.21

Chile IPSA 5151.79 -0.24

Argentina MerVal 145229.54 0.882

Colombia COLCAP 1201.90 -0.6

Currencies Latest Daily %

change

Brazil real 5.3808 -0.02

Mexico peso 19.9371 -0.36

Chile peso 951 1.46

Colombia peso 4871.14 1.90

Peru sol 3.9867 0.03

Argentina peso (interbank) 155.3900 -0.20

Argentina peso (parallel) 288 1.74

(Reporting by Devik Jain, Ankika Biswas and Susan Mathew in

Bengaluru

Editing by Alistair Bell)