Latam FX weakens on firmer dollar, Chilean peso leads declines

Currencies in Latin America weakened on Monday against a strengthening dollar on improving US economic outlook, with the Chilean peso leading declines as investors geared up for a central bank meeting later in the week.

The peso slipped 0.8% in early trading. Chile's central bank is not expected to move rates, with markets pricing in two rate hikes by the end of the year.

Like most emerging market central banks recently, Chile is expected to sound a bit more hawkish. Brazil's central bank minutes showed officials discussing more interest rate hikes, last week.

"The global rate-cutting cycle that occurred in the wake of the pandemic has ended and even begun to reverse," economists at Capital Economics wrote in a client note.

"But in the face of rising inflation, several emerging market central banks hiked interest rates, and by more than most expected."

Separately, Chilean President Sebastian Pinera said on Sunday he will ask Congress to postpone the election of an assembly to write a new constitution for the country from April until May, due to a rise in coronavirus cases.

The Brazilian real weakened 0.9% against the dollar, while Mexico's peso slipped 0.6%. The MSCI's index for Latin American currencies fell 1.1%.

A survey showed in Brazil, the fall in the country's services sector confidence accelerated in March to its lowest since June last year as the deadly second wave of the COVID-19 pandemic darkened the outlook for businesses and consumers.

High-yielding emerging market currencies have come under pressure this month from rising US bond yields, which have surged on expectations of higher inflation and have pushed up demand for the dollar.

The Turkish lira was among the few emerging market currencies to strengthen against the dollar as Sahap Kavcioglu, the new central bank governor who was appointed in a shock overhaul this month, played down "prejudiced" expectations of an interest rate cut in April or the following months.

Argentina's Buenos Aires province said it would extend the deadline for its $7 billion foreign debt restructuring until April 23, amid rising tensions with creditors after a year of negotiations that have failed to reach an agreement.

Stocks across Latin American markets were flat to lower, with the MSCI's index for Latam equities down 0.6%.