The Mexican peso gained against a soft dollar on Monday aided by positive investor reaction to the new leftist government's debut budget, while stocks in Brazil slipped dragged by declines in shares of financial companies. The peso was half a percent higher as investors positively reacted to the new budget with banks describing the plans to keep a lid on spending as credible and helpful to market sentiment.
The budget is a major test of President Andres Manuel Lopez Obrador's economic credibility, which was shaken when he scrapped a partly-built $13 billion airport on the basis of a referendum that was widely panned as illegitimate.
"The budget is a positive surprise for the market," analysts at Citigroup said earlier on Monday.
"Furthermore, rating agencies will be kept at bay for at least the next six months or so, as it would take meaningful slippage versus the plan to trigger downgrades," they added. The Brazilian real snapped out of early losses to climb 0.2 percent against the dollar, which slipped as traders were cautious before the US Federal Reserve's policy meeting this week, where interest rates are almost certain to rise.
Stocks on Sao Paulo's main index fell 0.2 percent driven by declines in shares of financial companies with Itau Unibanco Holding falling 0.8 percent.
The biggest decliner on the index was Brazil's largest airline, Gol Linhas Aereas Inteligentes after the company announced it will have to scrap the proposed takeover of mileage subsidiary Smiles Fidelidade SA. Despite the index's fall, substantial gains were recorded by aircraft manufacturer Embraer, which climbed 5 percent after announcing it was selling 80 percent of its commercial aviation business to Boeing.
"With the December rate hike of 25bps fully priced in, the market's attention has shifted to the Fed's policy path in 2019," said Rabobank analysts in a note.
The greenback has substantially gained against its emerging counterparts this year until a change in the Fed's tone in November indicating a rate-cycle pause sometime in 2019.
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