Mexican peso extends gains; Peru's sol plumbs new lows

Mexico's peso extended gains on Tuesday as sweeping changes to market-friendly policies seemed less likely after midterm elections, while Chile's currency fell ahead of a central bank decision on interest rates later in the day.

The Mexican peso extended gains to a third straight session as the make-up of the lower house of the Congress following Sunday's elections is seen as less conducive to President Andres Manuel Lopez Obrador's reform plans. Markets were especially worried about constitutional changes impacting the energy sector and independent entities.

"The main source of surprise in Sunday's election was (the ruling party) MORENA's low vote count, relative to pre-election polls... This, we think, should be interpreted as a hidden rejection vote towards the ruling party by Mexican voters," Credit Suisse strategists wrote in a note.

The currency is up about 0.7% for the year thanks to a rally since Friday which has seen it gain close to 2% so far.

Peru's sol fell another 1%, after plunging 2.5% on Monday, to new lows after a presidential election on Sunday. Socialist Pedro Castillo held a slight lead over right-wing rival Keiko Fujimori with 95% of the votes counted. Fujimori alleged "irregularities" in the counting on Monday.

The currency has lost almost 8% since Castillo's surprise win in the first round vote in April. Ratings agency S&P on Tuesday said it's too early to assess the fallout from election uncertainty.

Castillo on Monday sought to assuage markets, saying he would respect the central bank's autonomy should he be elected. A spilt vote could be a silver lining as it would make it difficult for Castillo to pass dramatic reforms, analysts say.

"As per article 116 of the Peruvian constitution, the next president of Peru takes office on 28 July, 2021. Therefore, we would expect that any legal challenges would need to be addressed and resolved before that date," Credit Suisse said.

Chile's peso dipped 0.1% with the central bank decision due at 0700 GMT. Data on Tuesday showed Chile's consumer prices rose 0.3% in May, while rolling 12-month inflation hit 3.6%, within the central bank's target range of 2%-4%.

Brazil's real continued to pull back after hitting six-month highs last week.

Data on Tuesday showed retail sales rose in April at their fastest rate in more than 20 years, kicking off Latin America's largest economy's second quarter on a strong footing.

Consumer stocks, Via Varejo, Lojas Americanas and Magazine Luiza were among the top gainers on Sao Paulo's Bovespa stocks index after the data.