Colombian peso drops over 1%; Mexican peso on a winning streak

Colombia's currency dropped 1% on Tuesday, a day after the central bank held interest rates as expected, leading Latin American peers lower as resurgent pandemic fears sent investors to the safety of the dollar.

The Colombian peso fell for the first time in four sessions and was last trading at 3,749.16.

The interest rate was held at a record low of 1.75%, and the bank held an expansionary stance as the country battles a third wave of COVID-19 and as anti-government protests have disrupted movement of goods across the country.

Citi noted that central bank chief Leonardo Villar's statement that decisions are made on a month-by-month basis suggests that while the board is not looking to move now, there is no commitment to low rates for an extended period.

"This makes the overall tone neutral in our view, though some market participants are bound to read it as dovish given ... some were expecting either a hike or a more hawkish tone from the board," Citi said, adding that the market should continue to price a hiking cycle this year and as early as the third quarter.

Brazil's real fell 0.7% as the dollar made healthy gains on risk aversion. With the highly infectious Delta variant of the coronavirus disease spreading to several countries, many government have been forced to bring back curbs, spurring fears it could derail global economic recovery.

In Brazil, President Jair Bolsonaro's popularity has been hitting lows as citizens question his leadership with more than 500,000 fatalities from the virus in Brazil.

Ratings agency S&P trimmed its overall growth forecast for emerging market currencies on Monday, citing slow vaccine rollouts as the biggest risk. However, it raised Brazil's economic growth estimate to 4.7% from 3.4% and Mexico's to 5.8% from 4.9%.

Mexico's peso bucked the trend, up 0.2%, extending gains for the seventh straight session.

With cryptocurrencies gaining interest in Latam, Mexican financial authorities on Monday said that crypto assets are not legal tender in Mexico, warning that financial institutions that operate with them are subject to sanctions. This was prompted by Mexican billionaire Ricardo Salinas Pliego saying his banking business, Banco Azteca, may begin using bitcoin.

Chile on Monday announced a $2 billion boost to health spending to address the coronavirus pandemic. The Chilean peso began the day firmer but gave up gains as copper prices fell.

Among stocks, Brazilian petrochemical company Braskem topped Sao Paulo's main index after a source said conglomerate Novonor, formerly known as Odebrecht, has extended through July 9 the deadline for delivery of nonbinding proposals for Braskem.