Latin American currencies are likely to recoup some recent losses in the coming months, the latest Reuters poll showed, but there are signs of shaky confidence among currency strategists and economists. The Brazilian real is forecast to strengthen 8.6 percent in 12 months to 3.60 to the dollar, according to the median of 38 forecasts, compared to 3.50 in the previous poll.
That is a relatively small change after the currency slumped in June for a fifth straight month to a two-year low, spurring the central bank to step up intervention. But details of the survey give reason for extra caution. Of the 19 forecasters who had also replied to the previous poll, 15 predicted a weaker real, three maintained their estimates, and only one raised them.
Some of those who seemed most certain of the real's strength were among those making the largest revisions. Garde Asset Management, for instance, now sees the currency weakening to 4 to the dollar in 12 months, the second-weakest forecast in the poll, compared to 3.60 previously. Meanwhile, estimates were nearly as wide-ranging as in the June poll, when the ranges were the most dispersed in two years, suggesting lingering uncertainty that could pave the way for further revisions ahead.
"It can be hard to separate short-term currency moves from changes to the underlying outlook, but the balance is clearly tipping towards a weaker real in the long term," Garde economist Daniel Weeks said. His comments highlight how an emerging-market selloff, magnified by local concerns across the region, has forced observers to redo their math.
Escalating indications of a full-blown trade war between China and the United States have sent investors scurrying for lower-risk assets, bumping up the US dollar. Adding to that, a nationwide truckers' strike nearly paralyzed major sectors of Latin America's largest economy in the final weeks of May, driving economists to cut their growth estimates.
Public support for the protests, which forced the government to introduce costly subsidies even as it struggled to curb a growing budget deficit, added to doubts over whether the winner of this year's election would stick to an agenda of deficit-cutting, pressuring the Brazilian real.
The Mexican peso went into a see-saw after the weekend elections, tumbling on Monday but surging on Tuesday after Obrador reassured observers he would stick to fiscal discipline.
Now, it seems investors are at least somewhat convinced that the currency is well supported. The peso is expected to strengthen 2.3 percent to 19 to the dollar in 12 months, just a hair away from the 18.83 consensus in the previous survey.
"We think at current levels, most of the bad news regarding NAFTA and presidential elections is priced in the Mexican peso," strategists at Bank of America Merrill Lynch wrote in a report. "The currency is close to fairly valued and positioning is more balanced."
While forecasters seem relatively sanguine towards most Latin American currencies, the Argentine peso is expected to continue underperforming its peers. After weakening by a staggering 34 percent so far this year, the peso is expected to fall an additional 12.1 percent in 12 months to 31.9 to the dollar, from 26.25 previously.
The peso has been the most vulnerable currency in the region to global downturns, owing to shaky support for President Mauricio Macri's austerity platform and political polarization.
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