September 13, 2012 / 9:31 PM / 5 years ago

EMERGING MARKETS-Latam FX up as Fed plan likely to boost dollar flows

* Mexico peso hits 5-mo high, Chile peso at over 1-yr high
    * Brazil says won't let its currency appreciate
    * Mexico peso gains 1.53 pct, Brazilian real up 0.4 pct

    By Michael O'Boyle
    MEXICO CITY, Sept 13 (Reuters) - Mexico's peso surged to a
more than five-month high on Thursday and Chile's peso traded at
its strongest in more than a year after the U.S. Federal Reserve
launched a new stimulus program that will likely boost dollar
inflows to emerging economies.
    Brazil's real saw more muted gains as the country's finance
minister suggested authorities there would keep up intervention
efforts to curb the appreciation of the country's currency.
    The Fed said it would buy $40 billion of mortgage debt per
month and will continue to purchase those and other assets until
the weak U.S. employment picture shows marked improvement.
    The Fed's previous stimulus programs since the 2008
financial crisis spurred gains in riskier assets as investors
took proceeds from Fed purchases to invest in higher-yielding
assets, such as Latin American local currency debt.
    "The Mexican peso could benefit both from the recovery in
the United States and also from the general better tone in terms
of risk aversion," said Mauro Roca, an analyst at Deutsche Bank
in New York.
    Mexico sends 80 percent of its exports to the United States
and it could see the most direct benefit in Latin America if the
U.S. economy improves.
    Bank of Mexico Governor Agustin Carstens said on Thursday in
an interview with Reuters that the Fed's program was the right
thing to do and that it should help Mexico's economy as well.
    The Mexican peso led gains in the region, firming
1.53 percent to 12.82 per U.S. dollar, its strongest since early
    The Mexican peso has been one of investors' favorite
emerging market bets since it is among the most easily-traded
currencies in the world and it is backed by a central bank that
is infrequently intervenes in markets.
    Analysts said the Fed plan should weaken the dollar in the
short term against emerging market currencies across the board.
    The weaker dollar should also lift commodities prices, which
also helps Latin American currencies since the region is a top
producer of raw materials such as copper and soy.
    The Brazilian real  rose a more modest 0.4
percent to bid at 2.0175 per dollar as investors feared the
central bank would intervene to keep the currency above 2 units
per dollar, a level the government considers beneficial to
    "We should see an appreciation pressure on the exchange
rate, which will likely test the level of 2 per dollar," said
Alexandre Andrade, an economist with Votorantim brokerage in Sao
    The real had weakened back from close to the 2 per dollar
level on Wednesday after the central bank intervened in the
market to weaken the real. 
    Brazil's Finance Minister Guido Mantega said the government
may deploy an "arsenal" of measures to cushion the impact of
dollar inflows into the domestic economy.
    Speaking to reporters in Brasilia just after the Fed
announcement, Mantega promised the government will not allow the
real to appreciate. 
    The Brazilian central bank has managed to keep the real
within a tight range of 2.00 and 2.10 per dollar since early
July. On Wednesday, it sold $1.37 billion worth of reverse
currency swaps, derivatives contracts that mimic buying dollars
in the futures market, as part of its efforts to curb the real's
    Deutsche Bank's Roca said the real would likely continue to
trade in the 2.0 to 2.05 per dollar range due to the threat of
stronger intervention measures. "They have enough ammunition to
make this threat credible," Roca said.   
    The Chilean peso rose 0.42 percent to close at a
more than one-year high of 472.70 before the Fed announcement.
The currency gained as local mining companies sold dollars in
the domestic market and as investors anticipated the Fed's move.
    Latin American FX prices at 2040 GMT:
 Currencies                            daily %  year-to-
                                        change     ate %
                              Latest              change
 Brazil real                  2.0190      0.32     -7.45
 Mexico peso                 12.8200      1.53      8.97
 Argentina peso*              6.2800      0.64    -24.68
 Chile peso                 472.7000      0.42      9.86
 Colombia peso            1,793.8000      0.41      8.06
 Peru sol                     2.5970      0.27      3.85
 * Argentine peso's rate between                        
0 : 0
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