Latam currencies likely to give back part of recent rally

The Mexican peso is unlikely to replicate its tumble to a record low following the US presidential election but could surrender some recent gains like other Latin American currencies in the coming year, a Reuters poll found on Tuesday. Foreign exchange strategists trimmed their 12-month forecasts for the weakening of the Brazilian real and the Mexican peso to 3.35 and 20.87 per dollar respectively. A month earlier, they had forecast them at 3.39 and 21.80 in a year's time.
Although the median forecasts in the survey project a drop of 7 percent for both currencies from Monday's close, they stopped short of the lows reached between Donald Trump's Nov. 8 election and Jan. 20 presidential inauguration. The real and the Mexican peso have gained about 10 percent from their lows hit after Trump's surprise victory as investors stepped in when they viewed both currencies as oversold. Domestic policies should help the currencies hold at least part of their recent gains, the poll showed.
In Mexico, the central bank has played a key role in reducing volatility, with policymakers offering hedge contracts to step up their intervention in currency markets without burning international reserves. Analysts have also noted that the Mexican currency remains undervalued considering the country's fundamentals.
"It is a stunning fact that the real effective exchange rate (REER) of the Mexican peso is at a post Tequila Crisis low (in 1994), which appears fundamentally unjustified and unsustainable," TD Securities strategist Sacha Tihanyi wrote in a note.