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Latam currencies rally on U.S. "cliff" deal
January 3, 2013 / 12:56 AM / in 5 years

Latam currencies rally on U.S. "cliff" deal

SAO PAULO (Reuters) - Latin American currencies and debt started 2013 on a positive note on Wednesday after U.S. lawmakers struck a deal to avoid a “fiscal cliff” of steep tax hikes and spending cuts that were seen as a threat to the continued recovery of the world’s largest economy.

Appetite for risk bolstered emerging market assets in general as the deal removed, at least for now, a key source of global uncertainty.

Battles over further spending cuts and another showdown about the U.S. federal debt limit may still scare investors in a couple of months, though.

“The resolution of this key issue in the United States removes a terrible risk to the world economy. That should buy some market optimism for the next few days,” said Luciano Rostagno, chief strategist at WestLB Bank in Brazil.

The Mexican peso led the regional currency rally, jumping 0.9 percent to 12.7450 per dollar, after a gain of 7.75 percent in 2012. The Chilean peso also climbed 0.9 percent, to 474.30 per dollar.

The Brazilian real rose a more modest 0.2 percent to 2.0443 per dollar as investors believed the currency is set to stabilize around that level -- which seems to be right within the central bank’s comfort zone.

Brazilian policymakers have repeatedly intervened in the foreign exchange market during the past six months to keep the real in a narrow range of 2.0 to 2.1 per dollar -- which they consider appropriate to stimulate exports without stoking inflation.

As inflation pressures mount in 2013, investors expect the central bank to keep the real close to the lower end of that range to curb prices of imported goods.

Additional reporting by Walter Brandimarte; Editing by Leslie Adler

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