Latin American Currencies Crushed as Oil Prices Plunge

(Bloomberg) -- Plummeting oil prices and the rapidly spreading coronavirus outbreak hammered Latin American currencies on Wednesday.

Mexico’s peso, the region’s most-traded currency, led declines, slumping 4.2% to a record against the dollar as of 10:45 a.m. New York time. The Brazilian real followed with a 2.4% drop, while Chile’s peso fell 1.5%.

Only the Colombian peso eked out a gain, edging higher after a five-day, 9.5% freefall.

Mexico’s peso is among the most exposed as investors typically use the currency -- which trades 24 hours a day -- as a proxy for broader risk sentiment. Add to that the currency’s reliance on high Mexican rates amid increasing pressure on the country’s central bank to deliver a cut and investors have every reason to feel skittish.

“The peso is typically the benchmark EM currency, so if sentiment toward EMs turns negative the way it has, the MXN usually comes under a good amount of pressure,” said Brendan McKenna, a strategist at Wells Fargo in New York. “The central bank needs to keep lowering rates, too, and cutting rates in this type of environment, when the currency has gotten hit the way it has, is likely to add more downside to the currency going forward.”

A rate cut is also expected in Brazil later today, which should dampen the attractiveness of the currency even more.

The peso and real are the worst performers among Latin American peers since the outbreak of the virus in mid-January, with the former down 21.7% and the latter down 18.2%. A non-stop rout in commodities, emerging-market stocks and finally developed-nation equities have all contributed to the sell-off, even as central banks in both nations rolled out currency intervention programs.

The spread of the coronavirus has roiled global markets and added to investor fears of a world-wide growth slowdown. Commodity exporters like Chile have also been hard-hit amid concern that demand will drop.

©2020 Bloomberg L.P.