The Brazilian real jumped nearly 1.5 percent while the Mexican peso hit a 19-month high on Friday after weaker-than-expected US jobs data upheld expectations of continued monetary stimulus by the Federal Reserve. Other Latin American currencies also rallied as hopes for a prolonged bond-buying program by the US central bank added to the support from Thursday's announcement of unprecedented monetary stimulus by the Bank of Japan.
The Chilean peso closed at a more than 1-1/2-year high, nearing levels that, according to analysts, could trigger a central bank intervention. The Mexican peso initially weakened after data showed that hiring by employers in the United States, Mexico's main trading partner, hit a nine-month low in March. Although the data raised doubts about the recovery of the world's largest economy, bets that the worrisome jobs outlook would keep the Fed's monetary stimulus in place eventually bolstered higher-yielding emerging market currencies.
The Mexican peso reversed losses to jump 1 percent to 12.1849 per dollar. "US payrolls were bad, fuelling expectations that a loose monetary policy will remain in place in the United States," said a trader with a large Brazilian bank in Sao Paulo. The Brazilian real strengthened past the psychologically relevant level of 2 per dollar for the first time in over two weeks.
The gains were also fuelled by rumours that the government could ease a financial tax known as IOF over fixed-income investments by foreigners, traders said. A spokesman at Brazil's Finance Ministry declined to comment. The real is unlikely to gain much further, however, as Brazilian policymakers seem likely to keep the exchange rate near the 2-per-dollar mark, considered by analysts as an appropriate level to avoid inflation pressures without hurting exporters.
Upholding that view, a senior official on President Dilma Rousseff's economic team told Reuters that "the exchange rate is fine where it is." In Chile, however, policymakers looked increasingly likely to intervene to stem currency gains as the peso closed at 468.80 per dollar, increasing year-to-date gains to more than 2 percent. "The trend for the peso is still positive. We see the market is shorting the dollar. The next level investors will test is 465 (per dollar), and then we can expect an intervention," said Matias Madrid, chief economist with Penta bank in Santiago.