LatAm Reopens After Holiday as Dollar Index Hits 102.4 | Pre-Open, Oct 13

The Latin American markets reopened following the Oct 13 holiday, as the dollar index reached 102.41. The carry trade is facing a new challenge, with strong dollar and high US yields making riskier assets in Mexico, Brazil, and Colombia less attractive to money managers. Argentina's inflation rate being above 2% could pressure the peso further, affecting perceptions of the entire region.

Elevated oil prices benefit exporters like Colombia and Mexico, but they also burden net importers such as Chile. The regional board is expected to make modest moves, awaiting US inflation data on Wednesday. Brazil's real rate is most impacted by the strong dollar, which raises imported costs, but the country benefits from a high Selic rate, giving the currency a carry magnet effect.

The day's focus is on whether the strong dollar and high oil prices keep risk appetite in check, or if Argentina's inflation reading causes traders to sell local assets. The global market sentiment is cautious rather than alarming, with Wall Street ending Monday almost unchanged. The evidence is mixed for Latin America, as the strong dollar and high oil prices pose challenges for importers, but Wall Street stability and potentially lower-than-expected inflation in Argentina create uncertainty.

The key variable to watch is the real's performance after the Focus survey, which could indicate whether foreign funds still find the Selic carry appealing. The Mexican peso has seen a small gain against the dollar, possibly due to oil's high level and market expectations of bad news.