EMERGING MARKETS-Mexican peso leads Latam FX lower as Trump's auto tariffs wobble markets

By Shashwat Chauhan

March 27 (Reuters) - Most Latin American currencies weakened against the dollar on Thursday, as investors assessed the implications of U.S. President Donald Trump'snew tariffs on auto imports, with Mexico's peso the worst in the lead-up to a local interest rate decision.

The peso MXN= dropped 1%, briefly hitting a more than two-week low after Trump unveiled a 25% tariff on imported vehicles, which will take effect on April 3, a day after he plans to announce reciprocal tariffs.

"Not surprisingly, the tariff talk is resulting in another round of risk-off, for stocks but also for FX, as traders try to ascertain the implications, but generally conclude that tariffs will be both growth-restraining and inflation-producing," said Thierry Wizman, global FX & rates strategist at Macquarie.

Implied volatility options to buy or sell Mexican pesos overnight MXNONO=FN were trading at 11.3 vols, their highest in over three weeks.

Later in the day, the Bank of Mexico is widely expected to cut its benchmark interest rate by 50 basis points, taking it to 9%.

Brazil's real BRL= edged 0.1% higher in choppy trading. Data released in the Brazilian central bank's quarterly monetary policy report showed the central bank raised its inflation projections for the long term despite anticipating weaker economic activity this year, and said this scenario makes reaching its 3% target challenging.

Separately, official data released on Thursday showed Brazil's 12-month inflation rate accelerated slightly less than expected in early March but still hit its highest level in two years.

In Argentina, Economy Minister Luis Caputo said the South American nation is targeting a $20 billion deal with the International Monetary Fund, formally putting a figure on the long-mooted program for the first time.

Argentine international bonds were marginally lower, while local stocks .MERV jumped 1.9%.

MSCI's index tracking Latin American currencies .MILA00000CUS slipped 0.2%, while stocks .MILA00000PUS ticked up 0.2%.

Brazil's Bovespa .BVSP rose 0.4%, boosted by rising energy shares.

Latin American currencies and stocks have lately benefited from a weakening dollar as the uncertainty over Trump's tariffs and other policies has raised concerns about economic slowdown in the world's biggest economy.

Despite Thursday's weakness, the index for Latin American currencies is up more than 9% year-to-date, compared with a 3.5% decline in the dollar index =USD.

Back on the tariff front, focus will be on the April 2 deadline for U.S. reciprocal tariffs, though Trump hinted on Wednesday that the measures may not be the like-for-like levies he has been pledging to impose.

HIGHLIGHTS

Brazil sees trade tensions getting worse before they get better

Namibia lowers 2025 economic growth forecast to 4.5%

Key Latin American stock indexes and currencies: