Coming back from the Labor Day break, traders bid up Latin American currencies and an emerging-market FX gauge recovered earlier declines as crude rallied. Brazil stood out: the real jumped up to 1.1% against the dollar after fresh polling showed Flavio Bolsonaro narrowing the gap with Luiz Inacio Lula da Silva before October's election. Brazil's equity benchmark also touched its highest level since April.
Across EM, the MSCI currency index was about flat, while the Malaysian ringgit and Indian rupee were the weakest performers. A companion index tracking developing-nation stocks fell.
Momentum in Brazil's race fed into local assets. RBC BlueBay Asset Management senior EM sovereign strategist Graham Stock said, "The evaporation of Lula's lead in second-round simulations over the last couple of weeks is driving increased appetite for local currency risk, in FX and rates in particular."
Chile and Colombia saw their pesos strengthen after inflation beat estimates, a backdrop that can nudge central banks toward tightening and boost the allure of high-yielding trades funded in lower-rate currencies. In Chile specifically, the central bank was expected to hold the policy rate at 4.5% later Tuesday, as growth remains soft and unemployment has climbed to its highest level since the pandemic lockdowns.
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Commodities added fuel. Copper, Chile's main export, set a record for a second day on supply worries, giving the peso another lift and helping counter the drag from pricier oil. Brent earlier raced toward $100 a barrel after Saudi Arabia shut several energy facilities in the south, following claims of new strikes by Iran-backed Houthi militants.
Later, oil gave back most of its advance when Iran's foreign minister stated the republic had made "significant progress" in discussions with Oman about establishing a temporary transit corridor via the Strait of Hormuz. Even so, higher energy costs kept pressure on US stocks.
The next big waypoint is US inflation on Wednesday, which will shape expectations for the Federal Reserve. Money markets assign a 60% probability to a quarter-point hike next week.
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