* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=BRL= Brazilian real poll data
* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=ARS= Argentine peso poll data
By Bruno Federowski
BRASILIA, Sept 6 (Reuters) - Brazil’s and Argentina’s currencies should recover from a sell-off to multi-year lows, the latest Reuters poll showed, but forecasters have grown much more tentative due to rampant volatility.
The Brazilian real is set to strengthen 9.6 percent to 3.79 to the dollar in 12 months, according to the median of 30 estimates from economists and strategists compiled Aug. 31-Sept. 4 as part of a regionwide Latin American monthly poll. The consensus in the previous surveyed pointed to a stronger rate, of 3.60 to the dollar.
Local factors, such as Brazil’s unpredictable presidential elections and soaring inflation in Argentina, are magnifying the effect of widespread risk aversion on Latin American markets as escalating trade tensions between the United States and other major economies threaten to deal a blow to global growth.
This would make the forecast revisions look surprisingly small after wariness over October’s presidential elections and an emerging-market rout drove the currency’s worst monthly performance in three years.
Yet that figure likely understates how forecasters are scrambling to update estimates in the wake of the slump. The standard deviation of the forecasts, a commonly used gauge of dispersion, soared to the highest since May 2016, surpassing a peak reached in June.
Three forecasters who regularly participate in Reuters’ foreign exchange polls asked not to be included this time around, either because they were still redoing their math or did not want to commit to a view.
The currency has been trading at a weaker rate than expected by every respondent who provided end-August forecasts since last year. Even Austin Rating’s Alex Agostini, who came closest to correctly predicting the real’s move three months ago, downplayed his achievement.
“To a large extent, I was lucky,” he said.
Agostini forecast the real will hover at 4.00 to the dollar for the time being, adding that this was more of a guess than a rigorous forecast.
“The factors driving FX volatility are unlikely to dim until the elections and even after we know the winner, a lot will hinge on what fiscal package he will propose and how the Congress will react to it. I kept my forecast at 4, but I wouldn’t rule out 4.20 or 3.50 either.”
The elections have thrown a wrench into forecasting, with much hinging on whether the winner will curb growing government debt.
Brazil’s jailed former President Luiz Inácio Lula da Silva, who has railed against austerity, has consistently led voter intention polls, but an electoral court blocked him from running. It remained to be seen whether his support will pass on to vice-presidential candidate Fernando Haddad.
Law-and-order lawmaker Jair Bolsonaro has consistently polled second. He has tapped University of Chicago-trained banker Paulo Guedes as his main economic advisor, but an erratic stance on policymaking and controversial remarks on social issues have lifted eyebrows.
Market favorite Geraldo Alckmin, an establishment politician supported by a wide bloc of parties who has pledged to curtail government spending, has failed to gather momentum.
Most strategists who did put themselves on the line provided some sort of weighted average based on the likelihood of each candidate winning. But only two of 30 predicted a weaker rate than the current 4.17 in 12 months, suggesting a consensus that at least some belt-tightening is on the horizon.
In contrast, forecasts for the Argentine peso ran all over the place, ranging from 28.92 to 42 compared to the current 39.25.
Not a single forecaster who had also participated in the August poll revised their prediction to show a stronger peso, though the median of 10 estimates suggested the currency is still likely to appreciate 13.9 percent to 34.135 in a year’s time, up from 31 percent previously.
While the election in Brazil acts as a clear trigger of volatility, which should fade once the vote is past, the peso’s selloff owes more to a generalized sense of anxiety around the nation’s economic prospects with no end in sight.
“With the central bank running out of room to surprise hawkishly, political risks building and the confidence of market participants remaining shaky, considerable volatility is likely to be par for the course,” strategists at Goldman Sachs wrote.
Growing lack of conviction in President Mauricio Macri’s ability to rein in inflation and a fiscal deficit have sent the peso to all-time lows even after policymakers negotiated a funding deal with the International Monetary Fund (IMF), sharply lifted interest rates, unveiled an austerity package and intervened in currency markets.
Other stories from the Reuters global foreign exchange poll: Reporting by Bruno Federowski; Additional reporting by Miguel Gutierrez in Mexico City, Hernan Nessi in Buenos Aires, Nelson Bocanegra in Bogota, Ursula Scollo in Lima and Felipe Iturrieta in Santiago Editing by Ross Finley and David Gregorio