By Gabriel Burin
BUENOS AIRES (Reuters) – Mexico’s peso is set to navigate between a relatively firm economy on one side and some political doubts on the other, with a small depreciation expected in the medium-term, a Reuters poll of foreign exchange experts showed.
The currency has lost 1% year-to-date, a minor drop given the list of negative factors it faces, such as the delayed start of monetary policy easing in the United States and higher global volatility due to elevated tensions in the Middle East.
In 12 months, the peso is forecast to shed 2.6% more to 17.59 per U.S. dollar from 17.13 on Tuesday, which would still leave it at a stronger rate than during most of the last eight years, according to the median estimate of the survey.
Among 16 respondents in the April 29-May 1 poll, the weakest forecast for the Mexican currency in one year was 18.70 per dollar and the strongest was 16.60.
“The MXN has underperformed amid a carry unwind, but fundamentals have not changed and Mexico should be the biggest beneficiary in emerging markets of U.S. exceptionalism,” said Erick Martinez, Latam FX and rates strategist at Barclays.
“Growth tailwinds from friend-shoring, close links to the United States in terms of the labor market and monetary policy should continue supporting the peso … we remain constructive near-term as it is too soon to trade U.S. election risks.”
As speculators cut “carry trade” positions, or bets on currencies of emerging market countries with high interest rates, the Mexican peso is notching up modest losses compared to other Latin American peers.
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While the country’s central bank lowered its benchmark rate in March by 25 basis points to 11%, the governing board will likely hold it there for longer than markets expect, a key policymaker told Reuters last month.
And although inflation remains a challenge, the region’s No.2 economy after Brazil is poised to grow steadily after the presidential vote of June 2, in line with a decent performance in the United States, a separate Reuters poll showed.
Former Mexico City mayor and ruling party candidate Claudia Sheinbaum is increasing her lead in the race for the presidency. Some economists doubt she would act with determination against fiscal shortfalls if elected, despite her promises of austerity.
“There is significant uncertainty around consequences (if not the outcome) of Mexico’s elections in June, as well as the U.S. election in November,” Capital Economics analysts wrote this week in a note on the outlook for the peso.
In Brazil, the real should gain 3.8% in 12 months to 5.0 per dollar from 5.19 on Tuesday. The currency is down 6.5% so far in 2024, as investors focus on a fiscal deterioration deeper than Mexico’s.
(For other stories from the May Reuters foreign exchange poll:)
(Reporting and polling by Gabriel Burin in Buenos Aires; additional polling by Anitta Sunil, Susobhan Sarkar and Rahul Trivedi; Editing by Ross Finley and Alison Williams)
