EMERGING MARKETS-Brazil real hit by threat of cenbank dollar buys

Tue Jul 3, 2012 6:11pm EDT

* Brazil cenbank always considering to buy dollars-official
    * Mexican peso flat as investors wary of election dispute
    * Brazil real drops 1.58 pct, Mexican peso flat

    SAO PAULO/MEXICO CITY, July 3 (Reuters) - Brazil's real sank
on Tuesday after a central bank official suggested policymakers
could buy more dollars to weaken the currency in order to boost
exports. Other Latin American markets were mixed.
    Aldo Mendes, the central bank's director of monetary policy,
told local news agency Agencia Estado that disappointing
industrial production figures in Brazil make it more likely the
government will seek a weaker real to support exporters.
    He said policymakers are constantly considering the purchase
of dollars on the spot market to mop up excess liquidity. Such
moves tend to weaken the real.
    Last month Brazil was selling currency swaps to boost the
real after it slumped to a three-year low, but Mendes' comments
erased early gains in the real on the back of bets that the
European Central Bank will cut interest rates on Thursday.
    "To say that the central bank may intervene buying dollars
and not only selling (currency swaps) caused the market to
immediately turn around," said Italo dos Santos from Icap
brokerage.
    The Brazilian real  lost 1.58 percent to bid at
2.0184 per dollar.
    The real has been pressured by slumping growth in Latin
America's top economy.
    Industrial production in Brazil shrank in May for the third
straight month, supporting the case for more interest rate cuts
and highlighting a persistent challenge for policymakers as they
struggle to revive a slowing economy. 
    The Chilean and Colombian pesos led gains among Latin 
American currencies on hopes that the European Central Bank will
cut interest rates to a record low on Thursday in a move that
could drive prices higher for commodities like oil and copper. 
 
    Chile's peso jumped 1.27 percent to close at its
strongest level in more than a month as the price of copper
, the country's main export, hit a seven-week high.
    Meantime, the Mexican peso was flat as investors
warily eyed the potential for a dispute over Sunday's
presidential election.
     Mexico's presidential election runner-up, leftist Andres
Manuel Lopez Obrador, said on Tuesday he would ask the country's
election authorities to recount the votes from Sunday's contest,
saying it was riddled with fraud. 
    "Investors aren't taking excessive positions until this is
all over," said Antonio Magana, a currency trader at
Interacciones brokerage in Mexico City. "There's a little bit of
nervousness."
     President-elect Enrique Pena Nieto won a quick count of the
vote by 6.5 percentage points, much less than expected, and his
Institutional Revolutionary Party failed to capture a majority
in Congress, undermining market bets that he could move swiftly
to pass economic reforms. 

     Latin American FX prices from Reuters at 2032 GMT
 Currencies                          daily %  yearly %
                                      change    change
                            Latest            
 Brazil real                2.0184     -1.58     -7.46
                                              
 Mexico peso               13.3292      0.01      4.80
                                              
 Argentina peso*            5.9400      0.34    -20.37
                                              
 Chile peso               494.6000      1.27      4.99
                                              
 Peru sol                   2.6410      0.42      2.12
                                              
 * Argentine peso's rate between                      
 brokerages
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