Latin American currencies will mostly weaken in the months ahead as political uncertainty and economic caution grip the region, a Reuters poll showed, with the Brazilian real and Chilean peso the only ones expected to recover later this year.
Mexico's peso is likely to slide to 20.00 per dollar as the economy struggles to grow and inflation persists, complicating life for the central bank, while the Argentine peso will steadily hit new lows with no rebound in sight, according to estimates in Oct. 31-Nov. 5 poll.
Domestic politics, worries over the US-China trade war, longevity of the record US expansion, and uncertainty ahead of the 2020 US presidential election will hang over Latin American currencies in the coming months.
In terms of magnitude, the biggest mover on the upside is expected to be Chile's peso, rising about 7% over the next year as recent social unrest and protests against the government die down, while Argentina's political and economic problems will continue and send the peso tumbling another 32%, the poll shows.
Brazil's real and Mexico's peso, meanwhile, show a divergence opening up between the region's big two currencies over the next year.
Investors are cautiously optimistic Brazil's government will progress on its economic reform agenda of reducing public spending, selling off state assets, and opening up the economy to the private sector and foreign capital inflows.
According to the median estimate of 25 currency strategists, Brazil's real will tread water around 4.00 per dollar for the next three months before strengthening to 3.95 in six months and 3.90 in 12 months.
Mexico's peso, on the other hand, is expected to drift in the opposite direction over the next year. The median forecast of 21 FX strategists in the Reuters poll shows the Mexican peso will weaken to 20.00 per dollar over the next 12 months, although none expect it to slip beyond 21.0, an upper limit that has held firm for three years.
The median forecast of 22 strategists shows the peso weakening to 19.6950 per dollar over the next three months. In July, it was projected to finish the year at 19.6 per dollar.
The loser in the short- and medium-term will be the Argentine peso, according to analysts, as investors and markets await signals from President-elect Alberto Fernández about the future direction of Latin America's No. 3 economy. According to the Reuters poll, the peso is expected to hit fresh low after fresh low over the next 12 months, culminating in a median estimate of 87.90 per dollar.
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