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EMERGING MARKETS-Latam currencies gain on China, U.S. outlook
June 14, 2011 / 4:38 PM / 6 years ago

EMERGING MARKETS-Latam currencies gain on China, U.S. outlook

* China, U.S. economic data boosts world growth outlook

* Brazil real, Mexico, Chile, Colombia pesos strengthen

* Chile gains on copper price rise and rate outlook.

By Jeb Blount

RIO DE JANEIRO, June (Reuters) - Latin American currencies gained on Tuesday against the U.S. dollar on expectation growth in China and the United States, the world’s largest economies, may not be slowing as quickly as expected.

Chinese retail sales and investment and consumer prices all rose in May, China’s government said. These are signs the world’s No. 2 economy continues to grow even as the government moves to curb inflation, said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. [ID:nL3E7HE05P]

U.S. retail sales, while falling for the first time in 11 months, declined less than expected and can be attributed in part to one-time disruptions in the supply of parts because of Japan’s March 11 earthquake and tsunami.[ID:nN14189765]

“There was a little light at the end of the tunnel overnight with sold numbers out of China and slightly better retail numbers out of the U.S,” Moran said in a phone interview. “In the short term at least this is good news for Latin American currencies.”

Mexico's peso MXN=MXN=D2 gained for a second day, firming 0.6 percent to a bid price of 11.7880 to the dollar. Chile's peso CLP=CL firmed 0.4 percent to 465.90 to the dollar.

Brazil's real BRBY strengthened for a third day, adding 0.4 percent to 1.580 bid. Colombia's peso COP2=STFX added 0.3 percent to 1,775.50.

Peru's sol PEN=PE was little changed gaining 0.04 percent to 2.610 to the dollar bid.

China and the U.S. are the dominant external markets for Latin America. China’s soaring demand for iron ore, copper, soybeans, coffee, chicken, oil and other commodities has allowed it to overtake the U.S. as the region’s largest trading partner.

The Reuters/Jefferies CRB index of 19 major commodities .CRB rose 0.13 percent to 345.01, its first gain in four days.

Copper, responsible for more than a third of Chile’s exports, jumped 2.7 percent to $9,154 a tonne in London. Light crude oil rose 0.75 percent to $98.07 a barrel. Oil is a key export for Mexico, Colombia and Brazil.

At the same time, the U.S. is the destination of 80 percent of Mexico’s exports and the main destination of Brazil’s high-value aircraft sales.

The Dow Jones industrial average, a proxy for U.S. economic health, rose above 12,000 for the first time since Friday, gaining 1.02 percent to 12,0754.39.

“There were some fears that both the Chinese data and U.S. retail sales could have been more negative, but they came out a bit better than expected and that is helping,” said Ramses Villela, head of currency trading at Bulltick, a Mexico City brokerage.

Currencies in Latin American in general and Brazil and Mexico in particular, frequently track gains and losses on the Dow Jones average.

The U.S. is also important as a source of the capital that is pouring into Latin America. Near zero U.S. interest rates allow investors to borrow in the world’s largest economy cheaply and invest money using the so-called “carry trade” in Latin America where rates are far higher.

Brazil raised its benchmark rate a quarter percent to 12.5 percent last week. Chile is expected to raise its benchmark rate to 5.25 percent from 5 percent at a meeting today. [ID:nN13156784]

“Another rate hike definitely makes Chile more favorable for the carry trade, but you still have countries like Brazil with even more favorable spreads,” said Matias Madrid, economist at Banco Penta in Santiago, in a phone interview.

Export earnings and capital flows from direct investment and the carry trade have caused the region’s currencies to surge against the dollar in the last two and a half years.

Since the end of 2009, the real has appreciated by almost 50 percent against the dollar. The Chilean peso has gained more than a third. The Mexican peso has jumped almost 17 percent.

A continuation of Tuesday’s gains may require better news out of Europe, the world’s other major economic region.

Rising expectation Greece will default on its debt, causing banking losses, has increased concern that losses from a default would restrict credit and growth world-wide. [ID:nN13126859]

“Everyone is waiting for the outcome of the meeting in Europe about Greece,” Villela said. “It is not like the market is expecting a solution today, but something that could ease fears a bit.”

Additional reporting by Michael O'Boyle in Mexico City and Brady Haynes and Moises Avila in Santiago; Editing by Diane Craft

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