The Brazilian and Mexican currencies are set to strengthen, but forecasts from market strategists polled by Reuters span an extremely wide range, suggesting that expectations for an imminent rebound from a recent selloff may be premature. Brazil's real is now expected to strengthen 8.8 percent to 3.5 to the dollar in 12 months, according to the median of 26 estimates compiled June 4-5, compared to 3.4 in a previous poll. It is down over 16 percent since February.
Mexico's peso, battered down over 10 percent since April, is set to firm 8.6 percent to 18.83 to the dollar, up from 18.5. Though seemingly small changes after both currencies plummeted almost 6 percent in May, the headline figures likely undersell the extent to which the shock is forcing forecasters to redo their math.
The standard deviation for Brazilian real estimates, a commonly used gauge of dispersion, soared to the highest since the monthly poll published in May 2016, when impeachment proceedings against former president Dilma Rousseff drove up uncertainty all around. The standard deviation for Mexican peso estimates reached a 15-month high.
This would suggest that forecasters are finally taking in a spike in US bond yields, growing chances of a trade rift between the United States and Mexico and a lower likelihood that the winner of Brazil's elections this year will manage to cut government spending, after taking those risks in stride for months.
"Some strategists are probably waiting until things calm down before revising their forecasts, but there's no denying that the dollar spike was much faster than nearly anyone expected," Mizuho Securities chief strategist Luciano Rostagno said. "This could be just the first step of a larger wave of revisions." Rostagno himself revised his forecasts for the real after a nationwide truckers' strike against high diesel prices in the final weeks of May forced the government to introduce diesel subsidies even as it struggles to plug a growing budget deficit.
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