© Reuters. Mexican peso banknotes at a coin shop in Ciudad Juarez, Mexico, November 10, 2017. REUTERS/Jose Luis Gonzalez
By Gabriel Buren
BENOS ERES (Reuters) – An expected decline in the Mexican peso will likely boost the favorable interest rate differential, according to a Reuters poll of foreign exchange strategists, although there is a wide range of opinions on the currency’s prospects over the next year.
This week, the peso extended its winning streak that began in the fourth quarter, reaching its highest levels in more than seven years after the central bank signaled it would have to stay on hold longer to bring down inflation.
The median estimate of 19 foreign exchange market professionals surveyed from June 1-6 for the peso’s value in 12 months was 18.60 per US dollar, indicating a 6.5% loss from Tuesday’s 17.39, but still a solid forecast and 3.5%. % stronger than last month. communicate.
It was also the best 12-month forecast in the recent history of the survey, reflecting the positive sentiment toward the large spread between Mexico’s benchmark interest rate, currently at 11.25%, and the US federal funds rate range of 5.00%-5.25%.
However, there are increasingly mixed views on the currency outlook, with the gap between the highest and lowest forecast widening further, to 20.85-16.58 pesos this month from 20.73-17.10 in May.
Optimists continue to raise their bets on higher rates in Mexico, while skeptics fear potential setbacks from strategies that overlook the country’s heavy reliance on modest US growth.
BofA analysts, who had one of the weakest forecasts, wrote in a recent report: “LatAm FX has generally traded as in normal times, showing low volatility. However, the shock of risk aversion could lead to a sharp deterioration in risk-benefit ratio. week.
“This is particularly stark for MXN, whose volatility is most subdued despite its arguably greater sensitivity to US-driven risk aversion shocks.”
In Brazil, the real is set to drop 4.5% in one year to 5.14 per US dollar from 4.91 this week. However, the consensus estimate was the same as in the last survey, showing little change in investor perceptions.
The currency’s relative stability is rooted in the general view that the central bank will soon be able to orchestrate a smooth policy easing cycle that will satisfy both jittery financial markets and a government bent on revitalizing the economy.
Year-to-date, the Mexican peso is up 12%, which has endeared it to currency traders. The real rose 7.7%, baffling critics who saw it collapse early in the government of President Luiz Inacio Lula da Silva.
(For other stories from the Reuters FX Poll in June:
(Reporting and polling by Gabriel Boren in Buenos Aires; additional polling by Anita Sunil and Aditi Verma in Bengaluru; Editing by Jonathan Capel, Ross Finlay and Sharon Singleton)