Reuters: US Dollar Report: EMERGING MARKETS-Mexico peso slips on U.S. data, Brazil's real flat

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EMERGING MARKETS-Mexico peso slips on U.S. data, Brazil's real flat Mar 21st 2012, 21:28 Wed Mar 21, 2012 5:28pm EDT * U.S. data disappoints, hurts export-dependent Mexican peso * Investors see Brazil cenbank defending real at 1.8 * Mexico peso off 0.39 pct, Brazil real ends near flat By Luciana Lopez and Caroline Stauffer NEW YORK/RIO DE JANEIRO, March 21 (Reuters) - The Mexican and Chilean pesos weakened after disappointing U.S. housing data on Wednesday, while expectations of more intervention curbed enthusiasm for Brazil's real. U.S. home resales unexpectedly fell in February and the supply of properties on the market rose, causing investors to opt for low-risk assets like U.S. Treasuries rather than higher-yielding emerging market currencies. While U.S. employment figures have shown improvement and pointed to recovery in the world's largest economy, analysts point to persistent patches of weakness, such as the ongoing fallout from the 2008 subprime mortgage crisis. "The data gives little indication that we have hit the bottom of this mortgage problem," said Enrique Alvarez, head of analysis at IDEAGlobal in New York. Mexico's economy is particularly tied to its northern neighbor, as it sends around 80 percent of its exports across the border. The Mexican peso dipped 0.39 percent to 12.7041 per dollar. Chile's peso ended 0.19 percent weaker, bidding at 485.10 per dollar, its weakest close in a week. Although Latin American currencies weakened on Wednesday, discouraging U.S. data can in the longer term help emerging market assets by supporting bets that the U.S. Federal Reserve may yet move to inject a third round of liquidity into the market. So-called quantitative easing has brought a flood of cash into Latin America's high-yielding assets in recent years. The European Central bank has also injected more than 1 trillion euros into the market through two three-year lending operations in recent months. "I expect a good portion of that money to end up in Latin America," said Alberto Bernal, head of fixed income research for Bulltick Capital Markets. "Those resources will continue to generate some important appreciation for the currencies," Bernal said. REAL SEEN UNDERPERFORMING Brazil's real ended just 0.09 percent weaker than its Tuesday close, bidding 1.819 per dollar, but the currency's appeal has declined since the government started intervening in the spot market last month to contain its advance. A stronger currency makes the country's exports more expensive and therefore less competitive, spurring the government and central bank to act. The real has lost more than 5 percent this month since authorities hardened their stance. "The real is massively underperforming its peers," said strategist Diego Donadio of BNP Paribas in Sao Paulo. He recommends selling Brazil's currency in favor of the Colombian or Mexican pesos as the central bank is no longer likely to tolerate a real stronger than 1.8 per dollar. Brazil's central bank said on Wednesday it had purchased $1.214 billion on the spot foreign exchange market between March 1 and March 16. Link this Share this Digg this Email Reprints

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