BRASILIA Major Latin American currencies appear more likely to hold their ground in coming months than they did in March, but they remain vulnerable to increased volatility coming from abroad, a Reuters poll showed on Thursday.
Estimates from top banks and research firms still suggest the currencies will probably give back part of their recent gains.
However, one-year forecasts for the Mexican peso and the Brazilian real against the U.S. dollar firmed from last month's poll, indicating reduced expectations of a complete reversal in the region's largest currency markets.
The 12-month forecasts strengthened for the Mexican peso to 19.875 per dollar from 20.87 in March and the Brazilian real to 3.295 from 3.35. Also gaining were the Colombian peso to 3020.0 from 3054.17 and the Chilean peso at 669.13 from 670.
Outlooks weakened for the Argentine peso, to 18.0 per dollar from 17.60 in March, and the Peruvian sol, to 3.38 from 3.36.
The Mexican peso has led gains among Latin American currencies this year, rebounding from all-time lows on hopes that U.S. President Donald Trump will not impose heavy tariffs on Mexican exports to the United States as he had threatened.
A series of interest rate increases by the Mexican central bank and its direct intervention in local currency markets with hedging contracts also explain the peso's newfound strength. As long as volatility remains low, higher interest rates should keep supporting the peso.
"Carry attractiveness has increased notably," wrote Rabobank senior strategist Christian Lawrence. "This is particularly true compared to other Latin American currencies," including Brazil, Chile and Colombia, which have cut rates over the past year.
Volatility has also declined in Brazil to around record lows, central bank chief Ilan Goldfajn said this week, despite what he called an "especially uncertain global outlook."
A source of potential instability is the U.S. Federal Reserve, which has so far raised interest rates at a very gradual pace, with no surprises. An acceleration of rate hikes could drain capital from higher-yielding emerging markets such as Latin America.
(Additional reporting by Noe Torres in Mexico City, Nelson Bocanegra in Bogota, Hernan Nessi in Buenos Aires, Ursula Scollo in Santiago; Editing by Ross Finley and Lisa Von Ahn)