Latam FX, stocks rally as dollar dogged by election jitters

Brazilian stocks and the real rose on Tuesday after better-than-expected manufacturing data, with most other Latin American currencies recovering from recent falls as the dollar weakened going into the US presidential elections.

The real added about 1.1%, with a survey showing that manufacturing activity reached a record high in October as a rise in employment and export orders to new highs helped extend a recovery in Latin America's largest economy.

Brazilian stocks rose 1.7% after a long weekend. Minutes from Brazil's latest central bank meeting struck a more hawkish tone than its Oct. 27-28 policy statement which pointed to low interest rates for a long time.

Mexico's peso rose 1.1% after a rough start to the week. Still, the currency, and Colombia's peso are expected to stay under pressure from weakness in the oil market.

Chile's peso jumped to a more than two-week high as improving factory data around the globe boosted prices for copper, the country's largest export.

Latin American stocks also rose on the day. The MSCI's index of stocks added 2.6%.

The day's gains in Latin America, and broader emerging markets were underpinned by investors pricing in a Joe Biden victory in the US presidential elections.

Analysts believe a Biden win would pressure the dollar as he is expected to spend big on stimulus and take a freer approach to trade, which is likely to benefit other currencies.

"Despite all the other forces, the US election will likely suck away all the oxygen for the coming sessions. Market consensus currently expects a Blue Wave, which on our estimates is worth about 2% USD downside," Mark McCormick global head of FX strategy at TD Securities wrote in a note.

A Reuters poll said Latin American currencies are poised to edge up in the event of a Democrat win, but domestic challenges will continue to hold them back.

The coronavirus pandemic had exacerbated economic problems in Latin America, raising concerns over the fiscal strength of several major economies as economic output dropped and governments took on more debt to cushion the pandemic's impact.