EMERGING MARKETS-Latam FX slumps; Mexico peso at 2-month low

Dated Posted: 2011-06-13

By Michael O'Boyle

MEXICO CITY, June 10 - Mexico's peso sank to an over two-month low on Friday, capping its worst week since last August, as it broke a key level that bodes for more losses as fear spreads that slow U.S. growth will hit Mexican exports.

U.S. stocks dropped sharply after Chinese data showed sales from Asia's biggest economy to the United States and the European Union slumped to their weakest since late 2009. That added to a string of weak data in the United States, Mexico's top trading partner.

"This has been a pretty bad week in terms of the souring of growth expectations in the United States, and that is the number one issue in terms affecting expectations of what is going on in Mexico," said David Mann, regional head of research for the Americas at Standard Chartered in New York.

The peso MXN= MXN=D2 lost 1.11 percent per dollar to 11.9050 per dollar.

The currency hit its weakest since early March 31 after the cost of dollars in pesos rose above its 100-day simple moving average, around 11.8566. The break in that level triggered a cascade of stop losses.

Traders betting against the currency may now target its 200-day simple moving average near 12.14 per dollar, analysts said.

"If we get bad data next week, the peso could break down in a big way," said Enrique Mendoza, an analyst at brokerage Intercam.

The peso shed almost 1.9 percent this week, its worst weekly percentage-loss since August 2010. The peso has tumbled about 3.6 percent since early May from a 2-1/2-year high.

Still, the peso is unlikely to suffer as much as it did during last summer when signs of a double-dip recession in the United States pushed it past 13 per dollar.

"We think this is more of an oil shock in the United States and will not turn into an actual recession. Therefore it should not impact Mexico in the same way," Mann said.

Fears about Greece's debt returned to the forefront hurting demand for riskier assets such as emerging market currencies. Investors received mixed messages about the progress of financial assistance to the debt-ridden country. For details, see  Brazil's real BRBY bid 0.5 percent weaker at 1.5950 per dollar, bringing its weekly loss to 1.32 percent.

China is one of Brazil's top trading partners and the currency could come under further pressure next week if a series of Chinese data suggests its demand for Brazilian commodities such as soy and iron ore could flag.

Data in Brazil on Friday showed retail sales dropped for the first time in a year in April, the latest sign that rising prices and recent credit curbs are beginning to slow growth in Latin America's biggest economy.

"If we see more signs of weak growth, the central bank would stop its current hiking cycle, and that could be one of the things that could start weakening the real," said George Lei, an analyst at Nomura Securities in New York.

Brazil's central bank raised its key interest rate on Wednesday to 12.25 percent, and many market players are betting policymakers may only deliver one more 25 basis points hike.

Chile's peso CLP=CL bid off 0.3 percent to 467.70 per dollar, ending about flat for the week.

Chile's central bank is expected to moderate the pace of its recent interest rate tightening cycle by hiking its benchmark interest rate by 25 basis points to 5.25 percent next week, a new monthly central bank poll of analysts showed on Friday.

(Additional reporting by Lorena Segura in Mexico City; Editing by Diane Craft)

 

Source: Reuters