Latin American Currencies Experience Correction Amid Political and Economic Factors
Recent days have seen a significant correction in Latin American currencies, with all currencies depreciating, particularly the Mexican peso. This shift was prompted by comments made by Donald Trump in an interview, where he highlighted car factories in Mexico as a ‘serious threat’ to the US. The market reacted to this news by anticipating potential negative impacts on the peso, including a stronger US dollar and trade challenges for Mexico. Commerzbank’s FX analyst Michael Pfister observed that USD/MXN briefly reached their forecast for the end of 2024.
Analyzing Risks for the Brazilian Real (BRL)
While the Mexican peso faces political risks related to the ruling coalition’s majority and recent policy changes, the Brazilian real is grappling with fiscal risks tied to the government’s fiscal strategies. Despite these challenges, experts still favor the BRL over the MXN, anticipating higher BRL/MXN levels by the year’s end. Both currencies could be impacted by a potential US dollar surge under a Trump administration, although the economic landscapes of Mexico and Brazil have followed distinct trajectories in recent times.
Fiscal Risks Loom Large for the BRL
- The Brazilian real’s vulnerability lies in ongoing fiscal risks associated with the government’s fiscal agenda.
- These risks are unlikely to dissipate in the near future unless the government adopts a more robust fiscal policy unexpectedly.
- Despite these challenges, fiscal concerns are currently overshadowed by the immediate risks affecting the peso.
Future Outlook: Potential Strengthening of BRL/MXN Pair
Given the prevailing conditions, experts believe that the BRL/MXN pair holds the potential to strengthen further by the end of the year. While uncertainties persist, a shift in fiscal policy or external economic factors could alter the trajectory of these Latin American currencies.