Colombia, Mexico lead declines among Latam FX on weak commodity prices

Most currencies and equities in resources-rich Latin America were on the back foot on Tuesday, as prices of base metals and crude oil slipped, while investors also assessed inflation data out of Brazil ahead of an upcoming policy decision.

Colombia's peso USDCOP depreciated 1.2% to hit levels not seen since October 2023, while Mexico's peso USDMXN weakened 1%, hovering near levels seen 22 months ago as oil prices slid after the Organization of Petroleum Exporting Countries cut its forecast for global oil demand growth in 2024 and the following year.

Copper exporter Chile's currency USDCLP slipped 0.4% as copper prices retreated on persistent worries about the economic health of top importer China.

Brazil's real USDBRL declined 0.5% as iron ore prices took a hit.

Data showed consumer prices in the region's biggest economy fell marginally in August, coming in slightly below market expectations, but that was not enough to reverse bets on an interest rate hike by the central bank at its meeting next week.

Traders still priced in a 96% probability that the local central bank could hike borrowing costs by 25 basis points to 10.75% later in the month.

"A premature loosening of monetary policy could risk a return to double-digit inflation as seen in 2022, a scenario still fresh in the minds of many," said Albie Manderson, FX risk manager at Deaglo.

"Adding to market anxiety is President Luiz Inacio Lula da Silva's appointment of Gabriel Galípolo as the new central bank chief, given his close ties to Lula and previous calls for deeper rate cuts."