October 29, 2019 / 2:46 PM / 8 months ago

EMERGING MARKETS-Latam FX weaken with all eyes on Fed, Brazil central bank

    By Susan Mathew
    Oct 29 (Reuters) - Latin American currencies weakened
against a steady dollar on Tuesday with all eyes on the U.S.
Federal Reserve as investors look for more clarity on the future
path of interest rate actions, with the Argentine peso slipping
after a day of gains. 
    Futures markets are fully priced for a quarter-point cut in
U.S. interest rates on Wednesday after the Fed's two-day
meeting, amid growing expectations that the central bank may
hold fire on further easing in December.
    "We expect the Fed to guide market expectations toward the
view that the mid-cycle monetary policy correction is complete,"
wrote Jon Harrison, managing director of EM macro strategy at TS
Lombard, which will tend to strengthen the dollar against
emerging market currencies.
    Wednesday will also see a decision on interest rates from
Brazil when the monetary policy committee is expected to cut the
key rate by 50 basis points as it tries to ignite growth and
keep inflation from falling further below target.
    "BRL is unlikely to be impacted by this policy
decision, though increased dovishness and a lower rate
trajectory will influence longer-term susceptibility to broad
dollar movements," said Sacha Tihanyi, deputy head of emerging
markets strategy at TD Securities.
    Latin American countries still have the chance to mitigate
the economic weakness many of them are suffering through
interest rate cuts, but their fiscal options are limited, an
official from the International Monetary Fund said on Monday.

    Argentina's peso weakened after Monday's gains, when capital
controls introduced by the central bank after center-left
candidate Alberto Fernandez won presidential elections on Sunday
propped up the currency. The black market peso firmed 8.8%, a
trader said.
     As financial markets keenly watch for signs of how he will
steer South America's No.2 economy, Fernandez appointed a small
transition team until his government takes over in December, but
there were no economists in the group.
     Argentina's sovereign dollar bonds came under pressure on
Tuesday after he vowed to 'turn the page' on the IMF-backed
policies of incumbent Mauricio Macri.
    Chile's peso lost around half a percent. Continued
protest on Tuesday was evidence that a cabinet reshuffle by
President Sebastian Pinera was not enough to tame a political
crisis in the country.
    Tracking a weakness in broader emerging market stocks
 and a sluggish Wall Street, most regional stocks
slipped between 0.2% and 1.5%.
    Poor earnings reports from toll operator CCR
pushed its shares to the bottom of Brazil's main index.
Food processor BRF SA topped the index after it
signed a deal to invest around $120 million to build a chicken
processing plant in Saudi Arabia.
    Key Latin American stock indexes and currencies at 1427 GMT:
   Stock indexes            Latest    Daily %
 MSCI Emerging Markets       1041.96     -0.1
 MSCI LatAm                  2807.46    -0.91
 Brazil Bovespa            107630.81    -0.51
 Mexico IPC                 43765.50        0
 Chile IPSA                  4920.89    -0.84
 Argentina MerVal           32664.44   -1.545
 Colombia IGBC              13163.98    -0.15
       Currencies           Latest    Daily %
 Brazil real                  4.0027    -0.28
 Mexico peso                 19.1191     0.00
 Chile peso                   726.88    -0.53
 Colombia peso               3384.03    -0.12
 Peru sol                     3.3348    -0.11
 Argentina peso              59.1000     0.85
 (Reporting by Susan Mathew in Bengaluru;
Editing by Chizu Nomiyama)
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