MXN: a worst performer this tri-mester - Rabobank
|Analysts at Rabobank looked at the MXN noted that it been one of the worst performing currencies over the past three months.
Key Quotes:
"Of the currencies we follow closely, only IDR has underperformed MXN although we can add EGP, SRD, VEF and YER to the list as well but those are highly illiquid currencies (if you can name the country for each of those without the use of the internet then kudos to you).
In fact, many maybe particularly surprised at MXN underperformance given that the WTI oil price hasrisen over 50% in the past three months. Indeed, the average 3mth rolling correlation of daily % returns of USD/MXN and WTI in 2015 was statistically significant at the 99% confidence interval. That correlation has been breaking down. One reason we suspect for this breakdown is that the recent rally in oil has been very much driven by the supply side.
Of course, oversupply was the likely driver of the initial tumble in oil prices back in 2014 but it is fair to say that the black stuff became somewhat of a bellwether for global risk sentiment during much of 2015 and the start of this year. However, the rise in oil prices of late has been very much driven by concerns over supply disruptions (Nigeria, Venezuela as just two examples) and so this relationship with global risk sentiment has broken down somewhat.
Indeed, correlation does not imply causation and the strong relationship between oil and USD/MXN was likely more about a third correlated variable – risk appetite/global sentiment. In fact, if we look at the correlation between USD/MXN and the MSCI emerging market equity index we see that this has increased recently.
As we continue to highlight, although correlations break down, the relationship between MXN and broad-based risk is long-standing and deeply entrenched and given it is in part a product of MXN’s unique characteristics in the region, there is no reason to expect MXN to lose its high beta nature anytime soon.
In summary, we see further downside for MXN as global stresses weigh on high beta currencies. The main impact on MXN from a domestic perspective is likely to come from any central bank action and in this respect, we think they will be hesitant to intervene unless price action becomes very disorderly. Even then, rate hikes may well be preferred over spot intervention. Outside of that, expect at least two 25bp Banxico rate hikes on the basis that Rabobank’s call for two 25bp Fed rate hikes comes to fruition."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.