Latam stocks, FX rise as dollar rally loses steam but eye weekly declines

By Ragini Mathur and Avinash P

Most Latin American currencies were mixed on Friday, as a dollar rally that had pressured riskier assets earlier in the week showed signs of fading, while a rebound in precious and base metals lifted the resource-rich region's stocks.

MSCI's regional currency index (.MILA00000CUS) gained 0.3%, though it remained on track for a weekly loss.

The dollar TVC:DXY had surged to a 13-month high on Wednesday as traders bet that a resilient U.S. economy would keep short-term interest rates elevated.

However, the greenback has since lost momentum and was headed for a second straight daily decline after Thursday's U.S. data tempered expectations for further Federal Reserve rate hikes this year.

Venezuela was also in focus after devastating earthquakes added to concerns over the country's already elevated debt restructuring and political risks.

Economic losses from the earthquake could exceed $10 billion, with brokers warning that low insurance penetration means the bulk of the damage will fall on an already fragile economy.

A United Nations preliminary assessment estimates $6.7 billion in direct economic damage caused by the earthquakes.

Some sovereign bonds came under strain on Friday.

"It is going to be a complex restructuring process. The earthquake doesn't make that better," said Rachel Ziemba, geopolitical and macro risk analyst and founder of Ziemba Insights.

"That's one of the reasons that we've seen some bondholders cut their losses."

A broad energy contract review tied to Venezuela's sweeping hydrocarbons law overhaul, aimed at attracting investment and boosting production, had been expected to conclude in late July, though reconstruction needs could delay it, sources and analysts said.

Elsewhere in LatAm, Brazil's benchmark Bovespa BMFBOVESPA:IBOV rose 0.8%, set for its biggest weekly jump since early April, while the real FX_IDC:USDBRL was up 0.2%. The country's current account deficit narrowed to $3.185 billion in May, central bank data showed, compared with the $4.159 billion shortfall expected in a Reuters poll.

In Peru, the sol FX_IDC:USDPEN rose 0.3% against the dollar, helped by a rebound in gold prices, a key export for the country.

Markets were also watching the presidential election, where right-wing candidate Keiko Fujimori appeared to have built an insurmountable lead in a razor-thin runoff.

That result would make Peru the latest Latin American country to shift rightward.

Earlier this week, Colombia's right-wing outsider Abelardo De La Espriella narrowly won the presidency, though the tight result is expected to constrain his agenda and force him to seek compromises in a divided Congress.

"We're still in a wait-and-see mode about how the new government is going to evolve. The question mark is whether they can deliver on the promises," Ziemba said.

Colombia's COLCAP index BVC:ICAP edged 1.1% higher but was on track for its steepest weekly fall since March 2020, while the peso FX_IDC:USDCOP slipped 0.2%.

In Chile, stocks BCS:SP_IPSA gained 0.6%, while the peso FX_IDC:USDCLP fell 0.7%. Copper prices reversed early losses and traded higher, supported by a weaker dollar and lower inventories despite broader pressure from equity markets.

MSCI's broader Latin American equities index (.MILA00000PUS) rose 0.9% on the day but was set for marginal weekly losses.

Key Latin American stock indexes and currencies: