By Gabriel Burin
BUENOS AIRES (Reuters) - Latin American currencies will likely hold their ground in the face of global volatility, but remain exposed to domestic fiscal problems as well as uncertainty over the outcome of the U.S. election later this year, a Reuters poll showed on Tuesday.
The median estimate for Brazil's currency
The Brazilian real gained 11 percent in June to its highest in almost a year as the central bank signaled it would hold interest rates at a whopping 14.25 percent for longer than expected to battle high inflation.
Market players had expected Brazil to start cutting interest rates soon to help the country recover from its worst recession in decades. But newly appointed central bank head Ilan Goldfajn surprised investors last month by suggesting the benchmark rate would stay unchanged for months to come.
"The more hawkish tone from the Brazilian central bank, indicating the delay of the monetary policy easing, benefits the real in the short term," analysts at JP Morgan wrote.
Brazil's large fiscal gap remains a threat for the real, though. Haitong Securities economist Flavio Serrano said he could downgrade his estimates for the currency unless there were signs of improvement in the country's public accounts.
"Fiscal risks should generate at least some premium on the exchange rate," Serrano said. Brazil posted its largest-ever primary budget deficit for the month of May. The shortfall is expected to hit 170.5 billion reais ($53.52 billion) in 2016.
Interim President Michel Temer's plans to bring the deficit down next year have calmed investors' worries. But the success of his austerity drive is far from assured, requiring Congressional approval of unpopular legislation in a country roiled by political strife and corruption scandals.
Opposing the brighter picture for the real, the median projection for the Mexican peso tumbled 4.0 percent to 18.2250 in one year. Estimates were compiled before Mexico's central bank hiked its rate by 50 basis points last Thursday.
The move by Banxico, as the bank is known, sought to shore up the peso, which sank 5.8 percent in the second quarter as Brexit fears hit Latin America's most heavily traded currency. The peso picked up after the hike and has stabilized.
Following the first shock waves after Britons' voted to leave the European Union, and with the U.S. Federal Reserve increasingly forced to the sidelines on rates, Juan Carlos Alderete at Banorte-Ixe, said: "what could be complicated for the peso is the U.S. election."
"You must protect yourself because ... the probability that (Donald) Trump wins is not low," he added, referring to the presumptive U.S. Republican presidential nominee. The view fits with a bearish stance among speculative investors.
Leveraged funds had a net position of 49,542 short contracts for the peso as of June 28, according to data from the U.S. Commodity Futures Trading Commission. This was below the record for this year of 52,520 but well above the average of 29,650.
Trump's vow to build a wall along the southern U.S. border with Mexico to keep out illegal immigrants and drugs has added an extra layer of unease to Mexican markets this year. His stated plan to renegotiate the North American Free Trade Agreement could also affect Mexico's economic prospects.