Brazil’s Real Leads Latin American FX Losses on Virus Fears

RIO DE JANEIRO, BRAZIL – Brazil’s real led losses across Latin American currencies on Tuesday January 5th, as a mix of weak economic data and coronavirus fears weighed and most other units weakened as a risk rally petered out.

The real sank 1.2% after dropping nearly 2% on Monday. The country posted a negative trade balance in December.

The UK variant of the coronavirus was confirmed in São Paulo on Monday, while China’s suspension of imports from a Brazilian pork plant, over coronavirus issues, also raised concerns over any disruptions to Brazil’s agriculture exports.

The country is among the worst hit by the coronavirus and is racing to ramp up inoculations, playing catch up to neighboring Chile and Argentina, where they are underway.

Concerns over the pandemic and Brazil’s fiscal health saw the real underperform most emerging market currencies in 2020. It has also marked a weak start to 2021.

Chile’s peso outperformed its peers for a second session, rising 0.2% after the country’s economic activity grew in November for the first time since the start of the COVID-19 pandemic in the South American nation.

Risk-linked assets, particularly those in Latin America, are expected to recover this year on the back of loose monetary policy, large stimulus measures and the eventual vaccination of the populace.

“Although the pandemic is weighing on the global economy at the moment, vaccinations are picking up speed in many countries. Fiscal and monetary policy are highly supportive, and financial conditions are very loose. We therefore continue to expect strong global growth in 2021, despite recent virus headlines,” Mark Haefele, chief investment officer at UBS Global Wealth Management wrote in a note.

Currencies of oil exporters Mexico and Colombia fell in tandem with an earlier drop in oil prices.

The Mexican government raised US$3 billion in a 50-year note offering that was more than three times oversubscribed. The move is part of a bid to increase government finances after a spike in spending due to the pandemic.

Latin American stocks also retreated, tracking a decline on Wall Street. Brazilian stocks fell 1.5%, while Chilean stocks lost 0.2%.