Most Latin American currencies are set to stabilise further because of growing optimism on policy fine-tuning, although the Mexican peso is increasingly prone to agitation over the US election in November, a Reuters poll showed on Wednesday.
The median estimate in the survey of 17 foreign exchange strategists for the Brazilian real in 12 months was 3.50 per dollar, 7.1 percent stronger than in July's outlook.
This remarkable tightening of the gap between the strategists' projection and the current rate of 3.26 points to a stabilisation in expectations for a currency that has dropped almost 50 percent since the start of 2012, when Brazil's economy began to stumble.
The jump in the outlook for the real comes as interim President Michel Temer presses on with his drive to alleviate Brazil's fiscal problems and restart economic growth.
The real consolidated close to its present value last month after Temer said his planned spending cap should clear Congress this year. Mizuho's Luciano Rostagno estimated the currency at 3.54 in 12 months on a "successful but very gradual fiscal adjustment."
Brazil faces a huge primary deficit of 170.5 billion reais ($52 billion) this year. Yet Temer is reluctant to cut social programs established by suspended President Dilma Rousseff, fearing that could worsen the country's recession.
The success of his moderate approach hinges on the ability to wade through daily corruption accusations and dysfunction plaguing all levels of government. "There's an important risk of disappointment ... due to political issues," Rostagno said. Eight of 12 poll participants who answered a separate question considered a "low" likelihood that bad fiscal results could hurt the real in coming months. Three said the odds of this were high, while one saw no chance.
Another question reflected a prevailing view among Latin American strategists of relative weakness in the US dollar for at least the rest of 2016, fuelled by a continuation of the Federal Reserve's cautious stance against risks like Britain's vote to leave the European Union. Better values were also predicted for the Colombian and Chilean pesos.