Latin America braces for
FX rollercoaster in Trump's first days: Reuters poll
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[December 01, 2016]
By Silvio Cascione
BRASILIA
(Reuters) - Uncertainty over the path of Latin American currencies has
spiked following the surprise election of Donald Trump to the White
House, with chances of more sudden losses against the U.S. dollar in
coming months, a Reuters poll showed.
Strategists revised their exchange rate forecasts sharply down for the
year ahead, especially for the Mexican peso <MXN=>, seen as particularly
vulnerable due to Trump's proposals to build a border wall and curtail
trade.
"The first 100 days of Trump's new administration should be of
volatility for nearly all emerging market currencies," said Tatiana
Pinheiro, an economist with Santander in Sao Paulo.
The Mexican peso is expected to trade at 20.77 per dollar in 12 months,
near an all-time low of 21.39 set in the week of Trump's Nov. 8 victory.
The range of forecasts was much wider than in previous polls, in a sign
markets have very little conviction over the outlook for the peso after
it lost more than 10 percent in a couple of days after Trump's win.
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Estimates for the peso in a year varied between 18.83 and 27.67 per
dollar. Two Reuters polls in the days before the U.S. election correctly
predicted the peso was poised to weaken to between 20.5-21 per dollar
initially in the event of a Trump victory.
Median forecasts for the Brazilian real and the Colombian peso in
12-months time were also down to 3.49 and 3,150 per dollar respectively.
Instability in Latin American currency markets has prompted Mexico to
raise interest rates and Brazil to moderate the pace of rate cuts, in a
blow to consumers and businesses. Brazil is struggling to emerge from
its worst recession in eight decades, with 12 million unemployed, while
Mexico is slowing down at a delicate moment for President Enrique Peña
Nieto.
"There is a busy electoral calendar in 2017 (local elections) and 2018
(federal elections, including president) and risks are for a repudiation
of the establishment as we have seen around the world," analysts with
Bank of America Merrill Lynch wrote in a research note.
A recent spike in oil prices following an OPEC agreement to cut
production could help oil-producing countries such as Colombia. However,
most analysts in the poll reckoned chances of further cuts to their
forecasts were higher than the opposite.
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![](../images/120116pics/busine39.jpg)
A woman is seen next to a board displaying the exchange rate for
Mexican peso and U.S. dollars at a foreign exchange house in Mexico
City, Mexico, November 10, 2016. REUTERS/Edgard Garrido
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The scenario of a sustained dollar rally in Latin America is consistent
with the outlook for other currency markets, given expectations for a
faster pace of interest rate hikes in the United States under Trump. [EUR/POLL]
However, if volatility subsides earlier than expected, the Brazilian
real could outperform other emerging market currencies because interest
rates, at 13.75 percent, remain very high despite two recent cuts by the
central bank.
"In a world of negative real yields ... a case can be made for further
appreciation given the backdrop of a conservative central bank in tandem
with progress on the approval of key fiscal reform bills. This could
potentially cause the real to overshoot toward 3.00," said Alberto
Ramos, head of Latin America economic research at Goldman Sachs.
(Reporting by Silvio Cascione; Additional reporting by Nelson Bocanegra
in Bogota, Miguel Gutierrez in Mexico City, Ursula Scollo in Lima,
Felipe Iturrieta in Santiago and Hernan Nessi in Buenos Aires; Editing
by Ross Finley and Chizu Nomiyama)
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