Brazil's real to keep trading close to pre-pandemic levels - poll

Brazil's real to keep trading close to pre-pandemic levels - poll

Brazilian real notes can be seen at the Bank of Brazil Cultural Center in Rio de Janeiro.

BUENOS AIRES Reuters -- Brazil's real will keep trading close to pre-pandemic levels, but it is still riding a wave of positive sentiment that is strikingly at odds with worsening economic conditions in the South American country, a poll shows.

The Brazilian currency had its best quarter in 13 years in the first three months of 2022, with a 17.5% appreciation. It started strongly in the second quarter and is poised to maintain the winning streak in the near term.

The real's performance is a bit different from an economy that continues to disappoint. There is a rise in interest rates that affects economic activity but doesn't curb high inflation.

Six out of a total of 10 analysts that answered a separate qualitative question in the poll, six viewed the risks for the real skewed to the upside, while three saw them tilted to the downside and one was neutral -- the most bullish balance in recent surveys.

The median estimate of 21 FX strategists on April 4 -- 6 showed that the forecasts were more cautious but relatively optimistic, pointing to a shallow 1.3% drop in one month to 4.72 reais per U.S. dollar from 4.66 reais on Wednesday.

The Brazilian currency is expected to depreciate 10.8% to 5.22 reais in 12 months, as Brazil's anemic growth, fears about the outcome of elections in October and other issues eventually offset the momentum, according to the poll.

Just before the outbreak of the coronaviruses, the currency changed hands at around 4.20 reais to the dollar.

The move in BRL was explained by the level of interest rates and the positive tailwind of commodities, amid a significant country risk premia reduction vis-a-vis last year, according to J.P. Morgan analysts.

They upgraded their second quarter estimate for the real to 5.00 from 5.30, but they added: While we think the real can continue to be well supported around current levels, our valuation models have started to flag it on expensive territory. The Mexican peso, which traded at 20.034 per U.S. dollar on Wednesday, is expected to keep oscillating within its post-pandemic range of 20.00 - 21.00, slowly losing 2.7% in the next year to 20.60.

The Mexican currency has been trading steady since it returned to pre-pandemic levels shortly after the initial hit from the health crisis. In the first quarter of this year, it gained 3.2%, almost unmoved by Russia's invasion of Ukraine.