Mexico peso to remain weak on political worries
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=BRL= poll data on Brazil real
reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=MXN= poll data on Mexican peso
By Gabriel Burin
BUENOS AIRES, July 3 (Reuters) - Mexico's peso is set to remain weak in the medium term as worries mount over the policy actions of the newly elected government and the potential outcome of the U.S. presidential elections in November.
The Mexican currency MXN= depreciated 7.1% during the first six months of this year, after investors dumped it followinga bigger-than-expected win forruling party candidate Claudia Sheinbaum in last month's presidential vote.
It will likely stay soft or even fall more in coming months, with Sheinbaum's government pushing reforms seen by investors as a potential erosion of some checks on the president's power that have long benefitted the business community.
The peso is projected to fall 1.9% to 18.60 per U.S. dollar in one year from 18.25 on Tuesday, according to the median estimate of 19 foreign exchange experts polled betweenJune 28-July 2. Forecasts ranged from 17 to 20.
"We expect volatility triggered by political events. On the internal front, a judicial reform will be voted on in September ... and the presidential vote in the United States could impact Mexico," said Montserrat Aldave, principal economist at Finamex.
Sheinbaum is defending a major judicial reform, pitched earlier this year by outgoing President Andres Manuel Lopez Obrador, which would look to choose judges - including for the Supreme Court - by popular vote.
The president-elect has said the changes would not represent a shift to authoritarianism. A version of the reform is likely to be passed when the newly elected legislature takes office in September.
Meanwhile, a planned review in 2026 of the United States-Mexico-Canada Agreement (USMCA) is also considered a major test for Sheinbaum's government, and a particular threat for Mexico if former President Donald Trump wins the U.S. election.
Of the 10 analysts who responded to an additional question about how risks were skewed for the currency over the coming year, nine viewed them on the weak side, whileone took a neutral stance.
For Brazil's real BRBY, BRL=, nine of 13 analysts were inclined towards a softer outlook, three took a neutral view,and one forecasta stronger performance than currently expected.
The Brazilian currency is down 14.6% so far this year and, in contrast to the peso which got some relief in the past couple of weeks, keeps approaching its historic low of 5.97 per U.S. dollar set at the start of the coronavirus pandemic.
The consensus forecast put it at 5.24 in one year, implying a potential gain of 8.4% over 5.68 on Tuesday, but still a much weaker 12-month outlook than last month's median estimate of 5.05.
(For other stories from the July Reuters foreign exchange poll: nL4N3IM0R6)
Reporting and polling by Gabriel Burin in Buenos Aires; additional polling by Pranoy Krishna, Rahul Trivedi and Purujit Arun in Bengaluru; Editing by Anil D'Silva
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