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Latin American Currencies Rose Due to Weakness in the Dollar

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Sharp appreciation in Latin American currencies

Latin American currencies were trading on a higher note on April 29 due to negative growth in the US Dollar Index and a dovish stance by Fed policymakers. The Brazilian real hit an eight-month high level. This led to interference by the Central Bank of Brazil to stem the rally in the currency. The Mexican peso and the Colombian peso also appreciated to their highest levels this year—compared to the US dollar. This was due to the weakening dollar and stabilizing commodity prices.

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Major Latin American markets were trading on a lower note on April 29. They took cues from the US and Europe. The Brazilian stock exchange BM&F Bovespa SA and the Colombian COLCAP index fell 0.74% and 1.4%, respectively. Among the Latin American indexes, the Argentinian Merval Index fell 0.11% while the Chilean IPSA Select Index was trading 0.51% lower. The Mexican IPC index was trading on a positive note by 0.56%. The Mexican economy expanded by 2.9% on an annual basis in the first quarter—compared to 2.5% growth in the previous quarter. On a quarterly basis, the GDP (gross domestic product) grew by 0.8%—compared to a 0.5% rise in the previous quarter. Strong growth in the services industry along with growth in the industrial and agricultural sectors contributed to the growth.

Mixed economic releases for Chile

Industrial production increased in Chile by 3.9% in March on an annual basis—compared to 1.8% growth in the previous month. Manufacturing production also increased by 2.7% in March—compared to a 1.3% rise in the previous month annually. However, Chilean retail sales fell by 1.9% on a monthly basis in March. This showed lower consumer demand. Unemployment rates across Latin American countries rose to 6.3% for Chile and 10.9% for Brazil.

Impact on the Market

Among the Latin America–focused ETFs, the iShares MSCI Brazil Capped ETF (EWZ) rose 0.75% on April 29. The iShares MSCI Mexico Capped ETF (EWW) was trading 1.2% higher at the end of the day.

Mexico, Colombia, Chile, and Brazil are closely linked to crude oil and commodity prices. The PowerShares DB Commodity Tracking ETF (DBC) rose 0.97%. On a broad-based level, the iShares Latin America 40 ETF (ILF) rose by 0.85% while the iShares MSCI Emerging Markets ETF (EEM) fell 0.43%.

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