Mexican peso up among muted Latam FX; currencies set for weekly gains

The Mexican peso rose after a positive reading on retail sales on Friday as most Latin American currencies traded in tight ranges, although major units in the regions were still set to end the week higher.

The peso rose 0.3% against the dollar after data showed retail sales rose in August by 2.5% from July, the fourth monthly increase in a row, as consumer spending continues to recover from the effects of the coronavirus pandemic.

Mexico's currency has fared somewhat better than its Latin American peers due to the country's close trade ties with the United States, which is now showing signs of a rebound but the peso still remains sensitive to news around the US presidential elections.

The Brazilian real fell after a survey showed consumer confidence fell in October for the first time in six months, suggesting that the economy's recovery may be losing steam. The real is still set for a weekly gain of 0.9%.

Emerging markets FX strategists at Citigroup said October's consumer confidence is still below pre-COVID-19 level and now expect fourth quarter GDP growth to show a significant deceleration following the robust expansion in the third quarter.

Morgan Stanley said on Friday it was time to ramp up exposure to emerging market currencies and hard-currency sovereign debt, with a shift of focus to the vaccine trade in the wake of the US election potentially giving developing assets a boost.

Emerging market stocks saw inflows of $2.7 billion, the largest in six weeks, while emerging market debt saw strong inflows of $2.2 billion, Bank of America said in a note on Friday, citing EPFR data. Investors piled in to EM equities and bonds in the week to Oct. 21.

The International Monetary Fund last week revised up its forecast for the global economy but warned that the outlook was worsening for many emerging markets.

The pesos of Chile and Colombia outperformed peers for the week, as investors remained hopeful of a recovery in both regions.

Colombia has swapped 2 trillion pesos ($529.5 million) of internal public debt, reducing expiries due in the next two years and avoiding increased indebtedness, the finance ministry said.

Argentina's peso weakened. Argentine bondholder groups slammed the government on Thursday over economic policies they said were undermining investor confidence in the country, which emerged from a sovereign default in September after a $65 billion restructuring.

Among other emerging markets currencies, Russia rouble strengthened 0.8% after the country's central bank left interest rates unchanged.