Latin American currencies strengthened on Tuesday as oil prices steadied near 11-year lows, curbing a recent bout of risk aversion. A rebound in crude prices, which have been pressured lately by concerns over global oversupply, increased the demand for commodity-linked currencies such as the Mexican peso.
The Colombian peso outperformed, rising 0.7 percent as investors braced for capital inflows stemming from the sale of a controlling stake in state electricity generator Isagen. Traders warned, however, that thin trading volumes could boost volatility ahead of the New Year's holiday. "Month, quarter and calendar year-end may make for a relatively busy few days ahead of the New Year as markets ease back after the Christmas break," Scotiabank analysts wrote in a client note.
The Brazilian real seesawed as traders worried that new Finance Minister Nelson Barbosa could loosen fiscal rigor even as the government struggles to suppress rising inflation. Brazil's primary budget deficit swelled well above expectations in November, data showed on Tuesday.
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