EMERGING MARKETS-Mexican peso weakens on rate cut fears, real jumps

Mon Jan 28, 2013 7:49pm EST

* Brazil real up 1.5 pct on Central Bank currency swap
rollover
    * Investors bet Brazil's move reflects inflation concerns
    * Mexico's peso loses 0.45 pct as Carstens bolsters rate cut
bets


    By Jean Arce and Alexandra Alper
    RIO DE JANEIRO, Jan 28 (Reuters) - The Mexican peso lost
ground for the second trading session in a row on Monday after
comments by the country's central bank governor bolstered bets
that Latin America's No. 2 economy is eyeing a rate cut.    
    But Brazil's real gained 1.5 percent, bucking losses in
other Latin American foreign exchange markets, after the central
bank signaled it would favor a stronger currency to fight
inflation.
    The Mexican peso lost 0.45 percent to 12.7652 per dollar
after Mexico's central bank head Agustin Carstens said the peso
is trading at "a relatively competitive level." 
    His comments backed the bank's statement earlier this month
that it could move to cut rates if inflation continues to cool
and economic growth flags, dropping its threat to tighten
policy. 
    The central bank's communique "takes support away from the
(Mexican peso), which is faced with the expectation of a
possible benchmark rate cut in the near future and much more
dovish minutes than in the last communique," Banorte-IXE
analysts said in a note to clients on Monday. 
    The peso  has slipped about 1.33 percent from
a 10 month high notched on Jan. 17, the day before the
communique's release, and is still weaker than it was before the
global financial crisis. 
    "It's going to be a cautious week for financial markets
because of (U.S.) economic data that is coming out," said Rafael
Camarena, an economist at Banco Santander, in reference to the
U.S. preliminary fourth quarter GDP results, a Federal Reserve
statement, and an employment report slated for later this week. 
    Camarena added that the peso would likely strengthen if the
data is positive. 
    In Brazil, speculation that the government now wants a real
around 2 per dollar - the latest in a series of changes of heart
by policymakers - grew after the central bank announced on
Monday that it was rolling over all of the 37,000 traditional
currency swaps that expire on Feb. 1. 
    Those contracts, which mimic the sale of dollars in the
futures market, were originally sold by the bank to boost
liquidity in the foreign exchange market at the end of the year,
a period when greenbacks traditionally are scarcer. 
    The swap rollover "is a good indication that the central
bank is really becoming more tolerant to a stronger real, at
least in the short term," said Flavia Cattan-Naslausky, a
strategist with RBS Securities in Stamford, Connecticut. "I
believe that is related to a deterioration in inflation." 
    The real  closed at 2.0006 per dollar, 1.5
percent stronger from Friday's close. Investors could soon try
to take the currency past 2 per dollar -- a mark it has not
crossed since early July, when the government intervened to
weaken the currency in order to boost exports.
    Brazil's benchmark consumer inflation rate closed 2012 at
5.84 percent, well above the center of a government target of
4.5 percent, but still within a tolerance range of 2 percentage
points. Prices continued to climb in the beginning of 2013 as
items such as food and personal expenses rose.
   
    Latin American FX prices at 23:55 GMT:
    
 Currencies                         daily %    YTD %
                                     change   change
                            Latest           
 Brazil real                2.0006      1.5     1.97
                                             
 Mexico peso               12.7652    -0.45     0.78
                                             
 Chile peso               473.1000    -0.27     1.18
                                             
 Colombia peso           1780.7300    -0.07    -0.83
                                             
 Peru sol                   2.5600    -0.08    -0.35
                                             
 Argentina peso             4.9700    -0.05    -1.16

 Argentina peso             7.5800     0.53   -10.55
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