BRASILIA/BUENOS AIRES: The US election drama and a weakening economy will knock the Mexican peso to an all-time low of 20 per dollar, a number of foreign exchange strategists forecast in a Reuters poll on Thursday.
Growing pessimism about the Mexican currency contrasted with signs of optimism from Colombia, where frustration over a failed peace accord is seen as dealing only a temporary blow to the peso, and Brazil, where hopes of budget reforms led some analysts to revise up their forecasts for the Brazilian real.
The median estimate of 32 strategists for where the Mexican peso will trade in a year from now weakened to 18.50 per dollar from 18.27 in last month's poll. Six analysts, for the first time since the monthly poll of strategists began in 2011, expected the peso to hit the 20 threshold within the next 12 months.
Trump has vowed he would build a wall on the border with Mexico and renegotiate or scrap the North American Free Trade Agreement if he is elected.
The United States is Mexico's main trading partner, and foreign exchange analysts say concern over any potential trade restrictions have weighed on the peso.
The peso has slid more than 10 percent this year and closed at 19.2150 on Wednesday.
To counter depreciation pressures, the country's central bank raised interest rates three times this year, even though inflation remains near the official target and economic growth has been weak.
Its last hike by 50 basis points to 4.75 percent was on Sept. 29, two days after the peso hit its record low of 19.92 pesos per dollar. According to strategists in the poll, the negative effect from higher interest rates on the Mexican economy is starting to weigh on the peso, adding to its ills.
Prospects of interest rate hikes in the United States also remain a potential risk for Mexico and other currencies in the region, even though the Federal Reserve has signaled it will move more slowly than previously expected.
"If the Fed raises rates again (in December), Mexico's central bank would probably hike rates too, to 5.25 percent," said Gloria Edith Vargas, from Guadalajara-based Banco Bansi.
"This economic situation could become more protracted, with budget cuts and weak growth." Hedge funds have been raising their bets against the peso, according to the latest data from the US Commodity Futures Trading Commission (CFTC).
Leveraged investors had a net position of 85,873 short contracts for the peso as of September 27, near a record, and volatility measures have been consistently on the rise since August.
COLOMBIA FRUSTRATION SEEN ENDING SOON
Volatility has also been on the rise in Colombia, where voters on Sunday surprisingly rejected a peace deal with Marxist FARC rebels. On Monday and Tuesday, the Colombian peso had its worst two-day slide since July, but it rebounded on Wednesday as oil prices rose.
However, strategists in the poll maintained their 12-month forecasts for the peso nearly unchanged from last month's poll, projecting the currency at 2,900 per US dollar, close to its current level of 2,930. Four analysts said the impact from the vote will be temporary, despite fears of heightened political uncertainty as authorities scrambled to revise the terms of the deal.
On a more cautious note, Catalina Guevara, an analyst with brokerage Alianza in Bogota, said capital inflows could still decrease without a peace accord. "All that foreigners' love that we used to see will not be as evident," Guevara said of Colombia as an investment destination.
The outlook for the Brazilian real also remained steady, with most strategists still forecasting the currency to gradually give back part of its recent gains.
The median forecast for the real projected the currency to weaken 6.5 percent from Wednesday's close within the next 12 months, to 3.43 per dollar, compared with 3.45 in last month's poll.
Some analysts, however, saw chances of more currency gains in coming months, even though many already see the real close to its fair market value after rising 22 percent in 2016.
With a forecast of 2.95 per dollar for the real in six and 12 months, BNP Paribas is the first bank in the Reuters poll since May 2015 to publish estimates for the Brazilian currency stronger than the three per dollar mark. "From the perspective of a foreign investor, the real should remain attractive even with the monetary authority easing aggressively," BNP Paribas strategist Gabriel Gersztein said.
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