Brazilian real leads Latam currencies' fall
By Andrei Khalip
SAO PAULO, Aug 20 (Reuters) - Brazil's plunging real led Latin Amercian currencies down on Friday, amid fears of an Ecuadorean default and an Argentine debt rating downgrade
which could provoke a domino effect in the already unstable, crisis-racked region.
As most currencies headed down, Moody's announcement that it might downgrade Argentine debt and bank deposit ratings only contributed to the vicious circle of mutual impacts between Latin American economies.
``It started with our domestic political woes and Ecuador yesterday and today, but now it is Argentina affecting the real more. It is a whole vicious circle where one is hitting another, and it keeps going on and on,' said one Sao Paulo trader.
He added that a weaker real would affect the trade balance of Brazil's biggest trade partner Argentina, causing more problems in the recession-ridden country, which is fighting hard to keep its peso-dollar peg.
The real (BRBY - news) extended losses on Friday, tumbling 2.9 percent to 1.995 per dollar in what traders called panicky trade on continuing concerns over the domestic political situation and neighboring Latin American economies.
The real is heading toward yet another five-month low and is now trading at its lowest levels since early March, when the foreign exchange rate closed at 2.07 per dollar.
``Things are under high pressure today and banks are looking for hedges,' a currency trader at Credibanco said. ``Our reforms may not materialize and there are concerns in Argentina, Ecuador and Venezuela.'
Fears that waning support for Brazilian President Fernando Henrique Cardoso could impede needed austerity measures sparked the real's latest slide.
Ecuador decided on Thursday to present a Brady bond debt renegotiation plan to the International Monetary Fund (IMF), fueling concerns all over the region that a debt default was imminent. Ecuador has denied the speculation of debt moratorium, but that did little to help the regional currencies.
The benchmark 48-hour Mexican peso contract weakened 3.8 centavos to 9.3650/9.3750 per dollar. Earlier in the morning it had fallen as much as 5.7 centavos.
``The peso's slip today is not directly linked to Ecuador itself...but more over the impact Ecuador may have in other economies and the perception of risk in Latin America as a whole,' one Mexico City trader said.
Uruguayan and Chilean pesos were also pressured by concerns over the falling real and the situation in the region as a whole.
``Ecuador is just another drop in a glass already very full of problems,' said one trader in Argentina. ``The concern over Ecuador isn't so much in terms of numbers but that it is another hot spot on the Latin American map,' he said.
Alejandro Opassi, fund manager with Lloyds Investment Managers, said he saw the Ecuador effect as limited. But he added ``It is going to affect investors' mindsets more than the market,' he said.
Analysts say an Ecuadorean bond default could hurt but not cripple already limping emerging debt and Latin American markets by underscoring their problems and again scaring off investors.
Huge capital flight forced Brazil to devalue its currency in mid-January. After recovering some losses, the currency has weakened 9.6 percent so far this month.
Shares on main Latin American bourses were mixed at midday, but, surprisingly, Brazil and Mexico posted some gains.
Brazilian brokers said the rise of the Bovespa benchamrk index, which was 2.3 percent higher in early afternoon, was due to apparent bottom-fishing on low volumes after recent sharp falls -- and also to the real's weakness, which made shares more attractive.
Argentine Merval (^MERV - news) exchange also started the day with some gains, but it reversed the trend after the Mooody's announcement and was 0.6 percent down in early afternoon. |
