Latin American stocks joined a broader sell-off in markets on Thursday, driven by uncertainty around economic growth, while surging US Treasury yields weighed on currencies, pushing the Mexican peso down 1%.
Downbeat profit growth at China's industrial firms amid a power shortage there was the latest data set to spook markets amid evidence of slowing growth in the world's second largest economy, a major destination for resource-rich Latam's commodity exports.
MSCI's index of Latam stocks tumbled 2.2%, while its currencies counterpart hit one-month lows.
Brazil's real hit a near six-week low, last trading down 0.7% at 5.417 to the dollar. Minutes of the central bank's policy meeting last week showed it eyed raising the key Selic rate by more than 100 basis points.
Policymakers plan more increases of that size taking rates to "significantly restrictive" levels in order to hit their 2022 inflation target, minutes showed.
Brazil's real outperforms Latam peers
Having begun the year at a record-low 2.00%, the fight against inflation - now over 10% - has seen the benchmark rate rise to 6.25%.
"We see USD/BRL around 5.33 at year-end, but risks are rising toward a weaker currency," said strategists at Citi Research. They see the Selic rate ending the year at 8.25% and peaking at 9.0% in February 2022.
In Mexico, the central bank is seen hiking the benchmark interest rate for the third time in a row by 25 basis points to 4.75% on Thursday as inflation stays above target.
TD Securities head of EM strategy Sacha Tihanyi expects the bank to continue to sound hawkish.
"MXN's carry has helped it to rebound from bouts of weakness in 2021. However, rising US yields will place an additional impetus on Banxico to ensure MXN short-term yields remain competitive, in order to minimize the potential for MXN instability."
On Tuesday, Mexico's peso slumped almost 1% to a one month low.
World's largest copper producer, Chile saw its currency drop to a near one-year low as prices of the red metal ticked lower.
Chile's House of Representatives is set to vote on the fourth pension funds withdrawal on Tuesday. The Chilean economy is expected to grow faster than anticipated, by 9.5% in 2021 from a previous estimate of 7.5%, Finance Minister Rodrigo Cerda said on Monday.
The Santiago government also lifted a state of emergency, put in place due to the pandemic, after successful vaccination campaigns.