BUENOS AIRES: Brazil’s real is set to keep its recent gains into the first-quarter of 2021 but the positive trend could unravel as the year wears on due to increasing fears about the country’s public finances, a Reuters poll showed.
The currency strengthened 7.7% against the dollar in November after a drop in the US currency in global markets as risk aversion eased in line with advances in vaccines for Covid-19, which has killed around 175,000 in Brazil.
“We see potential for optimism to build around BRL if pandemic welfare benefits are not extended and Brazil’s spending cap is respected,” said Juan Prada, an FX strategist at Barclays.
“This could see an overshoot early in 2021, but we think fiscal concerns could return in the second half of next year”. Indeed, this medium term worry is reflected patently in November’s survey.
The real’s 12-month forecast softened 1.8% compared to November to 5.09 per US dollar, the weakest estimate for that period in the survey’s history, according to the median view of 27 currency strategists polled Nov. 30-Dec. 2.
Seeking to calm concerns he may be slipping on the fiscal side, President Jair Bolsonaro said this week his government would not “perpetuate” emergency benefits granted to low-paid and informal workers during the pandemic.
Even so, worries are rising about whether Bolsonaro’s team will be able to keep expenditure on regular social programmes below the so-called “fiscal ceiling” in the middle of the campaign for the 2022 vote, where he could seek reelection.
In an unusual public clash between top officials, Economy Minister Paulo Guedes reacted to comments by central bank chief Roberto Campos Neto, who had stressed the need for a clear plan for ballooning debt.
In contrast, the Mexican peso was expected to be much more stable in coming months, oscillating just over 20.00 per US dollar, and almost exactly at par with this week’s values.
Currency strategists are looking at trade data signalling a recovery of Mexico’s economy after this year’s recession and the potential spillover from stronger growth in the US once the new Democrat government implements more expansionary policies. “Two local drivers... are likely to contribute to a better performance of MXN: first, a widening of excess USD given exports and imports dynamics, and second, strong remittances inflows,” said Victor Gomez, senior economist at Finamex.—Reuters
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