May 24, 2011 / 10:15 PM / in 7 years

Latin American currencies rebound on German confidence

RIO DE JANEIRO (Reuters) - Latin American currencies strengthened on Tuesday, led by Brazil’s real and Mexico’s peso, after stronger-than-expected economic confidence data in Germany, the world’s fourth-largest economy.

The data lifted oil, copper, coffee and other commodities, the backbone of many Latin American economies, following yesterday’s declines. That gave further support to the region’s currencies.

“The German news eases the concerns about growth and European debt that caused markets to weaken yesterday,” said Diego Donadio, Latin American foreign exchange and debt strategist for BNP Paribas in Sao Paulo. “With Germany’s export-oriented economy closely linked to China’s, that raised spirits for the world economy and commodities too.”

Brazil’s real strengthened 0.5 percent to a bid price of 1.622 to the dollar.

Brazil is the world’s largest producer of sugar, coffee and orange juice and the second-largest producer of soybeans and iron-ore. It is also a major oil producer.

The real may have also received a boost on Tuesday from Standard and Poor’s decision to put the country, the world’s eighth-largest economy, on watch for an upgrade. The agency already rates Brazil’s debt BBB-, an “investment grade” level.

Standard and Poor’s said the government was on the right track in its fight against inflation.

“While the ratings news is already priced in to the real, it may have helped it a bit,” said Flavio Serrano, senior economist with BES Investment Bank in Sao Paulo. “Today is primarily an international climate story.”

Chile’s peso firmed 0.27 percent to 471.80 per dollar, its first gain in three days. Copper, responsible for more than a third of the country’s exports, gained 0.81 percent to $8,861 a tonne.

“Foreign markets are more positive as a result of the recommendations by Goldman Sachs to invest in raw materials and this has favored copper,” said Rodrigo Sarria, a trader at Celfin Capital in Santiago.

Chile is the world’s largest producer of the reddish metal used in electrical and electronic equipment.


Other markets, including U.S. stocks, also rebounded today after Monday’s declines, helping Mexico’s peso gain.

The Dow Jones Industrial Average gained 0.2 percent.

Mexican markets and the peso frequently trade in response to news in the United States, which is Mexico’s principal trading partner. One of the most-traded emerging market currencies, it is frequently traded as a proxy for Latin American risk as a whole.

Mexico’s peso firmed 0.37 percent to 11.6905 to the dollar, its first gain in three days.

“There was a bit of a rebound in U.S. stocks. The peso is trading with the rest of the risk proxies,” said Francisco Diez, director of emerging markets trading at RBC Capital Markets in New York.

The Mexican peso may also have been helped by the release of economic data showing that a key inflation measure slowed in May to its lowest 12-month rate in five years, traders said.

“That sort of pulls more interest into the bond market from foreigners, and that in turn helps the peso,” Diez said.

Colombia’s peso weakened 0.28 percent after the finance ministry bought dollars as part of a $1.2 billion program to purchase foreign currency ahead of government debt maturities in 2012.

The buying, along with additional central bank purchases to bolster Colombia’s foreign currency reserves, are part of efforts by the government to stem the currency’s 8.7 percent rise against the dollar in the last 12 months.

The government is expected to spend about $25 million a day through the end of the year on the two programs.

Peru’s sol was little changed, weakening 0.04 percent to 2.749 to the dollar.

Additional reporting by Moises Avila in Santiago and Michael O'Boyle in Mexico City; Editing by W Simon and Andrew Hay

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