Most Latin American currencies traded sideways on Monday as investors waited to see how a global energy crunch would play out, while regional stocks followed their emerging market peers higher as they recovered from last week's losses.
Oil and coal shortages have hit several major economies in recent weeks, with factory shutdowns in China being especially concerning for Latin America, given the region's heavy dependence on the country.
Concerns over debt defaults in China's property sector also weighed, with local and dollar denominated bonds slumping on the prospect of missed payments by China Evergrande and its peers.
Crude exporter Mexico's peso fell 0.4%, the most among its Latin American peers, even as oil prices hit multi-year highs. Waning risk appetite has made the peso less attractive as a destination for carry trade.
High inflation prints last week, coupled with rising oil prices and laggard energy supplies, have fed concerns that inflation will stay elevated for longer and potentially weigh on an economic recovery despite central bank efforts to mitigate its impact.
Still, some analysts said concerns over an energy-led inflation spike were overplayed and that prices would stabilize eventually.
Latam FX dips as high treasury yields, Chinese concerns weigh
"Overall we expect only a modest impact on growth and inflation from the current increase in energy prices. The risk to our analysis is a harsh Northern Hemisphere winter that causes energy prices to spike again, disrupts industrial production and delivers a larger hit to GDP," Mark Haefele, chief investment officer, UBS Global Wealth Management, wrote in a note.
Brazil's real was flat against the dollar, as the central bank market survey FOCUS showed a rise in interest rate projections for 2022, to 8.75% from 8.5%, amid rising inflation forecasts.
Brazil's benchmark rate currently stands at 6.25%, and the central bank has hinted at more hikes this year.
The real has fallen around 12% from its highs this year, despite five interest rate hikes by the central bank to rein in inflation.
While political uncertainty has also hurt the currency, analysts are primarily concerned over runaway inflation, which is comfortably above the central bank's target.
Most Latin American stocks tracked mild gains in their broader emerging market peers on Monday.
Chilean and Argentine markets were closed for a holiday.
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