MEXICO CITY: Mexico's peso surged on Thursday on bets the government will seek big reforms in the oil industry, while yields on Brazil's interest rate futures sank after the central bank hinted it will slow the pace of its monetary tightening cycle.
Mexico's peso firmed after the country's main left-wing party said it was temporarily pulling out of a cross-party pact that was forged to help pass economic reforms.
The move could mean that President Enrique Pena Nieto is close to striking a deal with the main conservative party on passing measures to overhaul the state-run oil industry, which the left opposes.
The peso firmed 0.61 percent to 13.0420 per dollar.
Yields on shorter-term interest-rate futures in Brazil dropped by about a quarter percentage point after the central bank changed the wording of a closely watched statement issued Wednesday night after its monetary policy meeting.
At the meeting, the bank decided to raise the benchmark Selic rate by half a percentage point to 10 percent to curb prices, but removed from the statement a previous reference to monetary policy setting inflation on a declining trend for next year.
Investors saw the change as a possible sign that the bank is putting less emphasis on fighting inflation as the economy struggles.
Brazil's yield curve now prices in a 58 percent chance that the bank will raise the Selic by only 25 basis points, instead of 50, at its next meeting in January, according to Reuters data .
"This statement must be read as a signal that a 25 basis points hike in the following meeting must have gone up in likelihood very meaningfully," Citi strategist Dirk Willer wrote in a note to clients. "Of course, 50 basis points is still possible, but it probably would need further negative inflation surprises or significant currency weakness."
Before the statement change, most investors had bet the Selic would go up by another 50 basis points in January.
Clouding the outlook for inflation, which remains near the ceiling of a government target, is uncertainty on whether domestic fuel prices will be adjusted periodically according to a formula that is being discussed by state-run oil company, Petrobras, and the government.
President Dilma Rousseff is reportedly resisting implementation of such a formula for fears of its impact on inflation, although analysts expect domestic fuel prices to be raised soon, regardless of an agreement about future adjustments.
Another key variable for inflation in Brazil is that the exchange rate remains weaker than 2.30 reais per dollar, potentially increasing the price of imported goods.
The Brazilian real last traded at 2.3160 per dollar, 0.33 percent stronger on the day, but analysts said it remained vulnerable to signs that the US Federal Reserve might soon start winding down its stimulus measures.
The Fed's bond-buying program currently injects $85 billion a month into the US economy, and some of that money often finds its way into emerging markets as investors seek higher returns.
Trading in the Latin American foreign exchange markets was thin, as foreign investors were mostly out of the market for the US Thanksgiving holiday.
Comments
Comments are closed.