March 19, 2020 / 3:17 PM / 5 months ago

EMERGING MARKETS-Latam currencies weaken, but Fed move helps them off session lows

    By Susan Mathew
    March 19 (Reuters) - Latin American currencies weakened
again on Thursday, but the U.S. Federal Reserve's move to give
nine central banks, including Brazil's and Mexico's, access to
dollars helped them cut some losses. 
    The Fed said the currency swaps - in which the Fed accepts
other currencies as collateral in exchange for dollars - will
for at least the next six months allow the nine central banks to
tap up to a combined total of $450 billion. The aim is to ensure
the world's dollar-dependent financial system continues to
function in the face of the coronavirus pandemic.
    Latam currencies hit session highs after the announcement,
as the move helps the Fed manage the rush for the most liquid
currency by keeping open a line of easy access to it. 
    "The swaps do give financial relief and allows for the
dollar dominance to subside. It's one of many tools they're
throwing at the panic over recession and the depth it could
have," said Juan Perez, senior foreign exchange trader and
strategist at Tempus Inc, adding that the relief optimism may
not last long. 
    With more economies going into various degrees of shutdowns,
most central bank and government interventions have done little
to calm investors. JP Morgan On Thursday said emerging market
economies will slip into recession by mid-2020.
    Some like South Africa had already slipped into recession in
the fourth quarter of 2019. On Thursday, the country's central
bank delivered a 100-basis-point cut, double what was expected,
to support the economy. The rand cut some losses but then
was trading back at levels before the cut.
    MSCI's emerging markets currency index still
remained at three-year lows. 
    Brazil's central bank slashed interest rates by 50 basis
points late on Wednesday to a record low of 3.75%, but signaled
no rush to cut again and emphasized the need for more economic
reforms. The real fell 0.6%. 
    "The stimulus announced so far (in Brazil) seems still timid
compared with the health crisis," said Wilson Ferrarezi, an
analyst with TS Lombard in London. "We don't see any relief in
the near term for the real."     
    The Brazilian government's handling of the health crisis has
led to plunging popularity for President, Jair Bolsonaro, which
could add to volatility in markets, Ferrarezi said.
    Mexico's peso gave up about 2%, while Chile's peso
 traded flat after turning briefly positive. 
    Colombia's currency fell 0.8%. On Wednesday The
government said it has 14.8 trillion pesos ($3.65 billion) to
spend on emergency measures.
    Stocks in the region were mixed, with those in Chile,
Colombia and Argentina tracking a move higher on Wall Street
after the Fed's latest swap move. Brazilian and Mexican stocks
traded in the red.
    Key Latin American stock indexes and currencies at 1441 GMT:
  Stock indexes           Latest   Daily %
 MSCI Emerging Markets     766.52     -2.7
 MSCI LatAm               1426.65    -3.76
 Brazil Bovespa          63604.28    -4.92
 Mexico IPC              34601.79    -2.62
 Chile IPSA               3051.54      6.1
 Argentina MerVal        23372.79    5.821
 Colombia COLCAP           908.66     1.64
      Currencies          Latest   Daily %
 Brazil real               5.1354     1.19
 Mexico peso              24.2340    -2.18
 Chile peso                 867.2     0.07
 Colombia peso               4176    -0.47
 Peru sol                  3.5748    -0.08
 Argentina peso           63.5400    -0.33
 (Reporting by Susan Mathew in Bengaluru; editing by Jonathan
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