The Mexican peso's gains are expected to be limited in the coming year, a Reuters poll showed on Thursday, due to concerns about high asset prices and a weak global economy, but the chance of a ratings upgrade could spur value.
The peso, Latin America's most freely traded currency, is seen 1 percent stronger from Wednesday's close by next September at 12.65 per dollar, according to the median of 27 analysts surveyed by Reuters in the last week.
About half of analysts see the peso between 12.50 and 13.00 during the next year. The currency rocketed back from a more than three-year low hit in early June, leaving it up 9 percent so far this year, but most do not see it gaining much more. The median target puts the peso little changed at 12.80 by the end of 2012.
Analysts warn that massive US and European monetary stimulus programs may not boost growth while investors are nervous about high valuations in riskier assets, such as Mexican stocks and bonds that are trading near record levels. "Investors are now more conscious that (monetary stimulus) will not necessarily have an economic effect and that it could be creating a bubble, so they are not willing to go all in," said Jorge Gordillo, an analyst at CI Banco in Mexico City. The stimulus plans launched last month by the US Federal Reserve and the European Central Bank only helped improve expectations slightly compared to an early August poll.
Rock-bottom US interest rates and solid Mexican growth are seen pushing a steady stream of investors toward local assets, but they will be looking to buy on dips rather than push stocks and bonds too far past recent highs, analysts said. The yield on Mexico's benchmark 10-year bond hit a record low in July, but then saw a steep sell off before starting to fall again last month.
The IPC stock index also hit an all-time high in July, slumped and is now nearly back to record levels. Despite steady median forecasts, targets showed a wide range, with the risk of a weaker peso tilted towards the first quarter of 2013. Nearly one-third of respondents, 8 of 28, see the peso at 13.00 per dollar or weaker in the first quarter of 2013 while 10 out of 27 see it stronger than 12.50 by next September. Only four saw the peso stronger than 12.50 in the first quarter, while five saw the peso at 13.00 or weaker in the third quarter.
President-elect Enrique Pena Nieto, who takes office on December 1, has pledged to push for fiscal and energy reforms that could boost growth. If those long-stalled bills are passed, it could spur credit ratings agencies to upgrade Mexico's sovereign debt.
Many analysts are skeptical the country's divided Congress will swiftly pass deep reforms, but progress would likely boost the peso and drive it toward 12 per dollar, they said. "Reforms are probable, and that is why we see an appreciation into the third quarter since the market will be speculating on a debt upgrade," said Salvador Orozco, a strategist at Santander in Mexico City.
Other analysts say increasing intervention by other emerging market central banks to fight gains in their currencies will make the peso more attractive since Mexican policymakers avoid meddling in markets. But the ease of trading the peso has made it a magnet for speculators who bet against the peso whenever global risk sentiment sours. Continued worries about Europe and US growth could send the peso back above 13 per dollar, analysts said. "Mexico has become more of a proxy for risk than a currency that trades on fundamentals," said Marjorie Hernandez, a strategist at HSBC in New York. "You still have a lot of volatility and lack of conviction abroad.