EMERGING MARKETS-Latam FX up on China, but real weakens further

Thu Nov 22, 2012 3:25pm EST

Related Topics

* Chinese manufacturing growth accelerates
    * Brazil cenbank says may provide dlr liquidity at year-end
    * Brazil real drops 0.16 pct, Mexico peso gains 0.3 pct

    By Walter Brandimarte
    RIO DE JANEIRO, Nov 22 (Reuters) - Latin American currencies
gained on Thursday after encouraging Chinese manufacturing data
improved the outlook for the region's commodities exports,
although the Brazilian real fell to a 3-1/2-year low.
    The real initially rose after Brazil's central bank warned
it could supply dollars to the market at the end of the year,
but later erased all of its gains, under the impact of some
dollar outflows in a very thin market.
    Trading volumes were low across all Latin American countries
as U.S. markets were closed for the Thanksgiving holiday.
    "The Chinese data helped all markets. The euro is rising and
stocks are positive," said a trader in Mexico City, referring to
data that showed the expansion of China's manufacturing sector
accelerated in November for the first time in 13 months.
 
    The numbers raised hopes that China will remain a steady
consumer of Latin American commodities, supporting the outlook
for the region's exports and adding to investor appetite for
risk in general.
    The Mexican peso climbed 0.3 percent to 13.0140 per
dollar, while the Chilean peso rose 0.23 percent to
476.70 per greenback.
    The Brazilian real  dropped 0.16 percent to
2.0977 per dollar, its weakest level in 3-1/2 years.
    
    TESTING THE CENTRAL BANK
    Brazil's currency looks set to test the level of 2.1 per
dollar - which has been considered the upper limit of an
informal trading band imposed by policymakers - despite a
warning by central bank president Alexandre Tombini on Thursday.
    In a congressional hearing in Brasilia, Tombini vowed to
protect the real from speculative bouts and said the central
bank may provide "temporary liquidity" to the forex market at
the end of the year, when dollars traditionally become more
scarce in the country. 
    His remarks suggested the central bank is unlikely to allow
the currency to move too much, too fast in any direction, just
one day after Finance Minister Guido Mantega said the government
tries to intervene as little as possible in the market.
 
    Earlier in the week, President Dilma Rousseff also made
comments about the currency rate, suggesting the real remained
overvalued.
    The series of comments by top Brazilian officials about the
currency left investors divided about the future of the de-facto
trading range of 2.0-2.1 reais per dollar in which the currency
has been stuck since early July.
    While some analysts believe the government will favor a
slightly lower real to boost domestic economic activity, others
worry about the inflationary pressures stemming from a weaker
currency.

    Latin American currencies at 1950 GMT
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0977    -0.16   -11.00
                                             
 Mexico peso               13.0180     0.30     7.31
                                             
 Argentina peso*            6.3900    -0.16   -25.98
                                             
 Chile peso               476.7000     0.23     8.94
                                             
 Colombia peso              market      N/A      N/A
                            closed           
 Peru sol                   2.5870     0.23     4.25
                                             
 * Argentine peso's rate between                    
 brokerages
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