FxWirePro: Latin American FX Outlook: Can BRL continue to appreciate on disinflation? MXN eyes on U.S. election

Today inflation data for Brazil and Mexico is due for publication. In Brazil, battered by a recession, inflation has been easing since the start of the year. However, at 9% it recently still stood well above the central bank’s inflation target of 4.5%, which was mainly due to higher food prices.

Against this background, a notable fall in inflation could fuel rate cut expectations. However, the central bank had underlined repeatedly that in addition to a fall in inflation it would also like to see progress with political reform before considering a rate cut.

The awkward majority situation makes it difficult to implement these unpopular measures. That means the publication of the Brazilian inflation data is likely to cause only limited market movement.

It is forecasted that the USDBRL at 3.35 to 3.16 range for December 2016, and 3.45 for Q1’17. Thereafter, we remain constructive BRL in the very short term and attach high chances of seeing USDBRL touching 3.10 in the coming days.

In Mexico, inflation is likely to continue its moderate uptrend but remain slightly below the central bank’s target of 3%. Larger market moves seem unlikely as the focus is on other factors.

Short term information on the US Presidential elections is decisive, in particular, the risk of Trump becoming President.

A victory for Clinton is likely to notably ease the depreciation pressure on the peso. However, the impending Fed rate hike at year-end taken on its own would increase the pressure. Everything all told that suggests that USDMXN will remain volatile until year-end.