Chile peso falls despite trade surplus as LatAm FX feels dollar pain

Latin American currencies and equities retreated as escalating Middle East conflict and a broadly stronger dollar drove investors away from risk assets, with the Chilean peso among the hardest hit despite data showing a larger-than-expected trade surplus.

An MSCI index tracking publicly listed shares across the region fell 0.57%, on course for a third consecutive session of declines.

Shares of locally listed companies were also lower across the board.

Chile's trade surplus fails to lift the peso

Chile posted a trade surplus of $3.06 billion in March, exceeding analyst expectations of $2.65 billion, as commodity exports, including copper, outpaced imports of industrial goods.

The stronger-than-expected data did little to support the peso, however, as risk aversion linked to the Middle East conflict and dollar strength overwhelmed any positive domestic signal.

The move reflects more than a standard risk-off episode, according to Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

"A structural vulnerability to simultaneous oil and US dollar shocks has been exposed and the near-term outlook looks very tough," he said.

Chile's central bank has kept its interest rate policy on a neutral footing, though higher fuel costs are expected to add to inflationary pressure in the coming months.

Mexico hits a fresh low as sentiment sours

The Mexican peso fell to a new low against the dollar, declining 0.67% to 44.30 per dollar, dragging the Latin American currency index down 0.28%.

The Mexico Stock Exchange fell for a third consecutive session, losing 1.08%.

Colombia edges higher as policy diverges

The Colombian peso bucked the regional trend, rising 0.12% after the country's central bank raised interest rates despite opposition from the government.

The rate increase is expected to attract capital inflows, though the policy conflict between the central bank and government has added to uncertainty around Colombia's institutional credibility.

Brazil, Argentina and wider emerging market moves

Brazil's real fell 0.59%, and Argentina's peso slipped 0.07%.

The broader pressure on emerging market currencies extended beyond Latin America, with the Indonesian rupiah falling below 17,100 per dollar for the first time, and losses also recorded in the Turkish lira, Indian rupee, South African rand, Taiwanese dollar and Philippine peso.

Energy price weakness exacerbated the sell-off as investors reduced exposure to risk assets globally.

Geopolitics keeps investors cautious

The Middle East conflict, now entering its sixth week, continues to dominate market sentiment.

The strong dollar remains the most immediate source of pressure on risk assets across the region, with investors awaiting clearer signals on the trajectory of the conflict and its implications for global oil supply before repositioning.