Diverging short-term forecasts for Brazil and Mexico

 In Newsletter

Issue No. 103

Assets covered: Mexican peso, Brazilian real, LIFFE White Sugar Futures, and CBOT Soybeans Futures
Countries covered: Mexico and Brazil

 

Latin American currencies, led by those of Brazil and Mexico, have been in retreat this year as a slowdown in global growth hit commodity prices and demand for manufacturing exports. Crises in Argentina and Venezuela have also hurt sentiment in the region and had knock-on effects for neighboring economies.

 

The currencies of Brazil and Mexico, the two largest economies in the region, could diverge over the next few months. The Brazilian real appears poised for a rebound on stronger prices for its commodity exports, while the Mexican peso is likely to remain weak against the dollar.

USD/BRL Rate Forecasts Until December 2019

USD/BRL Rate Forecasts Until December 2019

This chart was generated using CI Futures. Book a demo to see it in action.

 

Brazil’s financial standing could also get a boost in the coming weeks if highly-anticipated reforms that would lessen the government pension burden is finally passed later this month. That, along with a stronger growth outlook and strict controls on government spending, should be positives for the currency going forward.

 

Brazil is also benefiting from a recovery in the price of soybeans, its biggest export. Prices rose in September and we see prices rising further into the end of the year. Brazil has no doubt benefited from the US-China trade war, as the country’s soybeans have become the major alternative source for Chinese buyers that are shunning US beans, though supply constraints are limiting their potential upside.

CBOT Soybeans Futures (S1) Forecasts Until December 2019

CBOT Soybeans Futures (S1) Forecasts Until December 2019

This chart was generated using CI Futures. Book a demo to see it in action.

 

Brazil is the world’s biggest sugar exporter, and prices for that commodity rose over 12% in September. Our models have prices rising again in October, but then flattening out and even declining at the end of the year.

White Sugar Futures Continuous Contract (W1) December 2019

White Sugar Futures Continuous Contract (W1) December 2019

This chart was generated using CI Futures. Book a demo to see it in action.

 

The outlook for the Mexican peso points to continued weakness, as trade uncertainties and weaker global growth could hit demand for the cars, computers and other electronics the country produces. Seven of the country’s top ten exports are manufactured products, with less reliance on volatile commodity prices. Mexico’s exports to the US have surged this year as the US imports less from China, but a general global slowdown, or softer US consumer spending, would be worrisome.

USD/MXN Rate Forecasts Until December 2019

USD/MXN Rate Forecasts Until December 2019

This chart was generated using CI Futures. Book a demo to see it in action.

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