Emerging Currencies Climb as Mexican Central Bank Steadies Peso

LONDON (Capital Markets in Africa) – A gauge of emerging-market currencies rose the most in more than three months and stocks indexes jumped as the Federal Reserve signaled a gradual pace of interest rate increases. Mexico’s peso halted a three-day slump after central-bank intervention.

Fed’s minutes of its December meeting released on Wednesday showed uncertainty over the impact of President-elect Donald Trump’s policies. Emerging market stocks rallied while gold extended gains to three days and copper rose to a three-week high.

“The minutes appear to have been the key driver today but the risk sentiment was favorable even ahead of the minutes yesterday,” said Erik Nelson, a currency analyst at Wells Fargo Securities in New York. “Some of the recent dollar moves reflect a period of consolidation after the strong rally seen at the end of last year.”

In Mexico, the peso erased losses after a plunge to a record low prompted the central bank to intervene. Banxico is selling dollars to strengthen the currency, central bank market operation manager Juan Rafael Garcia said in a phone interview in Mexico City. The nation’s currency commission will issue an statement later today, he said.

“The timing of today’s intervention likely surprises the market,” said Mike Moran, head of economic research for the Americas at Standard Chartered Plc. “Intervention is an escalation in their strategy to stabilize the currency. We highlighted risks of re-starting daily auctions back in November and I think this could be the next move to complement their currency defense”.

Currencies

• The MSCI Emerging Markets Currency Index rose 0.6 percent, the strongest advance since Sept. 22
• Mexico’s peso gained 0.6 percent, reversing earlier losses of as much as 0.8 percent after the central bank intervened
• Brazil’s real advanced 0.3 percent extending a rally to its third day
• INSIDE BRAZIL: Sour Mood Seen on FX Peers May Cloud BRL Session

Stocks

• The MSCI Emerging Markets Index was up for a third day, adding 1 percent to the highest since Nov. 10
• Argentina’s Merval index rose 0.3 percent, the seventh consecutive advance, the longest streak since October; Mexico’s IPC index gained 1 percent 
• Brazil’s Ibovespa rose 0.4 percent led by steelmakers

What to Watch

• Mexico Peso Erases Decline After Banxico Sells Dollars
• Argentina Ends Currency Rule Seen as Barrier to Stock Investment
• Iron Ore May Be Set to Defy Bears Again in ‘17 as China Buys

Analysis on Mexico

• “It is certainly worth noting that this is the first time we have seen the central bank intervene in the FX market since it announced a discretionary intervention policy last February. In that regard, this is instructive in terms of how Banxico views the recent price action and arguably sends an important message to markets that Banxico is willing to take measures to support the orderly trading of its currency,” saidErik Nelson, a currency analyst at Wells Fargo Securities in New York. 
• “We stay bearish on MXN at least into Trump’s inauguration,” Citigroup Inc. strategists Dirk Willer, Kenneth Lam and Fernando Jorge Diaz said in a note to clients. “But this morning’s intervention may undercut the short term momentum for a weaker MXN.”