* Brazil's Haddad 'certain' of rate cut * Dollar jumps, U.S. Treasury raises auction sizes * Peso loses half its value in a year on informal market *
* Brazil’s Haddad ‘certain’ of rate cut * Dollar jumps, U.S. Treasury raises auction sizes * Peso loses half its value in a year on informal market * Latam FX down 1%, stocks off 2.2% By Ankika Biswas Aug 2 (Reuters) – Latin American currencies took a hit on Wednesday as the dollar rallied despite a U.S. credit rating downgrade, while investors awaited a likely interest rate cut from Brazil later in the day. The MSCI index for Latam currencies dropped 1.0% to a two-week low, set for its steepest one-day percentage fall since mid-March. Denting global sentiment, rating agency Fitch downgraded the U.S. to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten government’s ability to pay bills. However, the dollar remains a safe haven, analysts noted. In fact, the dollar touched a near one-month high following the Treasury Department’s plans to “incrementally” increase the size of its auctions as it faces a growing deficit and the need to balance overall profile of debt issues. The real slipped 0.5% ahead of the Brazilian central bank’s rate decision, which follows Chile kicking off a policy easing cycle in major Latam countries last week. Brazil’s Finance Minister noted his certainty about a monetary easing cycle. “The main question will surround the magnitude of the cut,” said Matthew Ryan, head of market strategy, Ebury. “The consensus appears to be for a smaller, 25-basis-point cut, although following the latest inflation miss, we would not rule out a 50 basis point rate reduction. This is not fully priced in by markets, so we could see some immediate downside in the Brazilian real following the decision.” Consumer prices in Sao Paulo, Brazil’s most populous city, fell 0.14 in July, after a decline of 0.03 in June, the IPC-FIPE index showed on Wednesday. Chile’s peso and Peru’s sol slipped 1.2% and 0.8%, respectively, tracking lower prices of copper, a mainstay of their economies. Peru’s finance minister said preliminary data showed the economy shrank in June, marking two consecutive quarters of contraction – a common definition for a recession. However, he told reporters that economic growth could return in July. Hurt by a fall in crude oil prices, top producer Colombia’s peso dropped 1.2% to a two-week low. The currency has also been under pressure on mounting speculation of a future policy easing. The MSCI index for Latam stocks lost 2.2%, touching a two-week low, led by declines in Mexican, Argentine and Chilean equities. Cuba’s peso was trading at an all-time low of 230 to the dollar on the informal market, slumping to half its value a year ago, a widely watched tracker showed. Key Latin American stock indexes and currencies at 1500 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 1018.75 -2.33 MSCI LatAm 2478.26 -2.16 Brazil Bovespa 120610.69 -0.53 Mexico IPC 53730.42 -0.89 Chile IPSA 6364.14 -1.06 Argentina MerVal 444899.42 -1.793 Colombia COLCAP 1171.06 -0.66 Currencies Latest Daily % change Brazil real 4.8170 -0.55 Mexico peso 17.0440 -0.99 Chile peso 850.5 -1.22 Colombia peso 4059.13 -1.23 Peru sol 3.6595 -0.75 Argentina peso (interbank) 277.3000 -0.40 Argentina peso (parallel) 553 1.27 (Reporting by Ankika Biswas in Bengaluru; Editing by Richard Chang)
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