EMERGING MARKETS-Post-Fed rally in Latam currencies loses steam

Thu Sep 19, 2013 10:56am EDT

* Brazil, Mexico currencies dip; Colombia peso gains
    * Investors see Fed more data-dependent, stoking volatility

    By Silvio Cascione
    SAO PAULO, Sept 19 (Reuters) - The currencies of Brazil and
Mexico retreated on Thursday after soaring the prior day as
investor concerns resurfaced on the eventual cutback in the
Federal Reserve's bond buying program, which so far has mostly
has been positive for emerging markets.
    Brazil's real  slid 0.36 percent after jumping
nearly 3 percent on Wednesday to its strongest level since late
June. Mexico's peso , which gained nearly 2
percent after the Fed's surprise decision, dipped 0.20 percent.
    Colombia's peso stood out among Latin America's
currencies to gain 0.96 percent against the dollar
    Emerging market currencies, stocks and bonds soared on
Wednesday after the Fed, unsure about the health of a tentative
economic recovery, decided to keep its $85 billion-a-month
bond-buying stimulus program in full gear.
    As the Fed's easy money policies have driven investors to
seek higher returns in emerging markets, those assets suffered
under the prospect of the Fed reducing its monetary stimulus, an
idea first floated by Fed Chairman Ben Bernanke in May.
    Many investors welcomed Wednesday's announcement as the
trigger of a positive trend for emerging market assets that
could last for weeks. However, others expressed caution as the
Fed's strategy seems to be more dependent on economic indicators
than it looked before -- which could make the outlook for U.S.
monetary policy less predictable, hence feeding volatility.
    "Asset prices will remain susceptible to surprises in U.S.
economic indicators that could alter market expectations about
the timing of tapering," said Jose Carlos de Faria, chief Brazil
economist at Deutsche Bank, in a note.
    Jobless claims data suggested on Thursday a pickup in hiring
in September, which if sustained could make the Fed more
comfortable about tapering stimulus by year-end. 
    "The uncertainty created by the decision not to taper may
end up generating further bouts of market volatility which in
turn might create new problems for emerging market
policymakers," wrote Capital Economics analysts in a research
note.
     "More fundamentally, the structural problems that put
several emerging markets in the firing line over the summer have
not gone away,"  citing Brazil's widening balance of payments'
current account deficit.
    For Siobhan Morden, head of Latin America strategy at
Jefferies, the fact that emerging market currencies were already
recovering ground before the Fed's announcement suggests this is
a solid positive trend though. "It looks as if the markets have
already adjusted to the event risk, even if the Fed postpones
tapering to October or even December," she said.
    
    Key Latin American currencies at 1417 GMT:    
 Currencies                                 daily %      YTD %
                                             change     change
                                  Latest             
 Brazil real                      2.2014      -0.36      -7.33
                                                     
 Mexico peso                     12.6900      -0.20       1.37
                                                     
 Colombia peso                 1888.8500       0.96      -6.50
                                                     
 Peru sol                         2.7440       0.26      -7.03
                                                     
 Argentina peso (interbank)       5.7525       0.00     -14.60
                                                     
 Argentina peso (parallel)        9.3400       0.43     -27.41
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.