By Susan Mathew
July 6 (Reuters) – Latin American currencies fell sharply on Wednesday as rising recession fears and analysts’ warnings of sustained risk aversion sent investors fleeing to safer assets.
Minutes of the U.S. Federal Reserve’s June meeting showed officials acknowledged the risks to economic growth were to the downside, and that Fed policy could have a larger than anticipated impact.
Investors expect the Fed to approve another 75-basis-point rate increase this month. It has said it is prioritizing inflation control over growth.
“The prospect of a recession on both sides of the Atlantic is of course weakening EM currencies,” said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank.
“EM are likely to struggle to decouple from developments in the developed economies under these circumstances.”
As copper prices tumbled to 20-month lows, top producer Chile’s peso CLP= slumped 1.2% and touched an all-time low of 993.65. The currency has been in record-low territory for two weeks now on copper demand worries as well as a strike at Chile’s biggest mining company Codelco.
No.2 copper producer Peru’s sol PEN= dropped 0.7% to its lowest since mid-January protests at its copper mines drove output of the metal down 11.2% in May from a year ago.
Crude exporters Colombia COP= and Mexico MXN= also saw their currencies slide, with Colombia’s peso touching a record low of 4,390.0 per dollar.
S&P Global Ratings upped Mexico’s long-term ratings outlook to stable from negative on Wednesday, citing expectations of a cautious fiscal and monetary policy as well as less insecurity on energy policy.
Brazil’s real BRBY lost 0.6% to hit five-month lows, with volatility seen rising as October elections approach.
Technical analysis shows MSCI’s Latam currencies index .MILA000000CUS could see a bigger correction, as could broader emerging market units.
Emerging markets suffered a fourth straight month of portfolio outflows in June, notching the longest losing streak in seven years, data from the Institute of International Finance showed.
In the last week of June, however, outflows from developed stock markets outpaced emerging markets, figures from BofA showed.
While most Latam bourses were flat to lower on the day, Argentina’s Merval index .MERV gained 1.2%, continuing its recovery after Monday’s decline.
Argentina’s new economy chief, Silvina Batakis, told the International Monetary Fund that she supports the objectives of the Fund’s $44 billion program with the country and will work constructively with the global lender.
Investors had been worried about the future of the IMF deal, secured by her predecessor Martin Guzman, after his shock resignation over the weekend.
Key Latin American stock indexes and currencies at 1852 GMT:
Daily % change
MSCI Emerging Markets .MSCIEF
MSCI LatAm .MILA00000PUS
Brazil Bovespa .BVSP