The Colombian peso touched a two-month low on Monday, as crude prices slumped on worries of weaker demand from China following the coronavirus outbreak, while the Brazilian real extended its recent sell-off to touch a new record low.
The mood across the developing world was cautious amid fears of a slowdown caused by the epidemic in China, a strong dollar and battered commodity prices. Colombia’s peso dropped 1.2% to 3454.5 per dollar, falling for a fourth session and leading losses among Latin American currencies, hit by oil prices that fell to their lowest since January 2019.
“EM currencies are in the unenviable position of being exposed to the likely global demand fallout and associated weakness in commodity prices,” analysts at Oxford Economics wrote in a client note. They cut exposure to Latin American local bonds, including those of Brazil and downgraded the real – one of the most sensitive currencies to the coronavirus uncertainty – to “neutral”.
As of Monday, the death toll from the outbreak rose to 909, surpassing that of Severe Acute Respiratory Syndrome (SARS), which killed hundreds worldwide in 2002/2003. The World Health Organization (WHO) warned that new cases outside of China could be “the spark that becomes a bigger fire.” The real hit a fresh record low of 4.3285 per dollar after logging its sixth weekly drop on Friday.
Also weighing on emerging market currencies was a stronger dollar, which hit a four-month high against the euro, boosted by safe-haven demand and a bullish outlook for the U.S. economy. In Argentina, its new government heads into do-or-die talks this week with its biggest creditor, the International Monetary Fund, seeking a deal to postpone debt payments while honoring a promise to voters to not go along with painful budget cuts.
The country’s peso currency weakened against the dollar, while the Chilean peso and the Peruvian sol also eased. Chilean stocks fell more than 1%, with the largest South American airline, LATAM Airlines Group, leading the decline.
The fast-spreading virus in China has hit the travel and tourism industry around the world. Sao Paulo-listed shares also fell 1%, with reinsurer company IRB Brasil Resseguros SA sliding 14% after asset management firm Squadra Investimentos released a new letter to investors reiterating the company’s gains may be overstated.