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POLL-Brazil FX gains now hinge upon Congress pension breakthrough

Gabriel Burin

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=BRL= poll data on Brazil's real

* reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/fx-polls?RIC=MXN= poll data on Mexico's peso

BUENOS AIRES, July 5 (Reuters) - Brazil's real is waiting for an imminent breakthrough of President Jair Bolsonaro's social security overhaul in Congress to consolidate recent gains after a volatile first-half of 2019, a Reuters poll showed.

The median forecast from 24 currency strategists polled July 1-3 on the Brazilian currency pointed to an exchange rate of 3.80 per dollar in 12 months, close to June's estimate and almost exactly at the same value it was on Thursday.

Bolsonaro's government hopes a lower house plenary will pass the retirement bill before Congress goes on recess on July 18. Brazilian senators are expected to complete the legislative process by year-end.

"A successful approval of the pension reform should support the real from the second half of the year onwards," You-Na Park, emerging markets analyst at Commerzbank, said. They expect the real at 3.30 in one year, the strongest view of the survey.

Political quarreling over the reform's scope and social impact meant a difficult beginning of the year for the real, which only recovered in May on the first clear indications the pension issue was on track.

An amended version of the initiative aims to generate savings of around 940 billion reais ($244 billion) over the next decade, enough to put Brazil's finances in order and allay investor fears.

The currency is now virtually also at the same rate where it started 2019, in a wait-and-see mode as the deadline for lawmakers to act approaches. The international backdrop has also played in the real's favor in the last few weeks.

An indirect hit from global market anxiety about U.S. tariff plans was "partly cushioned by the effects of a more dovish Fed rhetoric on EM currencies, which is particularly the case for the BRL," Rabobank noted in a report this week.

MEXICO PESO HELPED BY HIGH RATES

In contrast, the Mexican peso suffered direct damage from U.S. President Donald Trump's trade threats last month, but the fever subsided quickly following an agreement over immigration. High domestic interest rates helped, too.

With active "carry-trades" based on a hawkish monetary policy aimed at stabilizing the currency, the peso is seen at 19.5800 per dollar in one year, little changed from June's poll and 2.9% weaker than its present value.

Any Mexican rate cuts are likely to happen gradually, lagging moves in other EM high-yielders, Goldman Sachs said in a report last week. This "should mean that MXN remains an attractive option to earn carry for now," it added.

Like the real, the unit is trading around its level at the start of 2019, 6.0% stronger than its 6-month forecast back then, when the peso had just regained ground after a period of market tension related to the new government's program.

Mexican businessmen are still wary of President Andrés Manuel López Obrador a year after his landslide election that ousted a long-ruling party and shook investor nerves over his anti-establishment approach.

The story is different in Argentina, where companies and investors are siding with President Mauricio Macri in his re-election bid for October's vote. He is trailing the Peronist opposition ticket by a small margin, according to some surveys.

The peso has behaved decently for two straight months, a feat for the fragile Argentine currency in times of increased political risk, and is expected to continue so into 2020, with a forecast of 52.7 per dollar in 12 months.

It even logged an unusual monthly rise in June as Argentines stopped buying safe-haven dollars to put pesos in time deposit accounts paying interest rates above 50% resulting from the central bank's harsh strategy to fight high inflation. (Reporting by Gabriel Burin; additional reporting by Miguel Ángel Gutiérrez in Mexico City and Nelson Bocanegra in Bogotá Editing by Ross Finley and Sandra Maler)