USD/MXN: Potential for sharp moves higher – CIBC
|Economists at CIBC Capital Markets expect the USD/MXN pair to edge higher as Banxico is set to decouple from the Fed with a rate cut this month.
Banxico will decouple from the Fed in March
With no changes to the convergence of inflation back to the 3% target and Banxico opening the door for a March rate cut, we keep our call for consecutive rate cuts starting next month and our overnight rate year-end forecast at 9.25% (vs. 9.65% expected by market).
The attractive carry of the MXN has been the main driver of its resilience since the start of the year. Nevertheless, a sooner-than-anticipated decoupling from the Fed, and increasing odds of a faster pace of rate cuts by Banxico, point to a rapid dissipation of the MXN’s carry. This underscores the potential for sharp USD/MXN moves higher amid already large net long MXN positions by non-commercial players (speculative).
We maintain our Q1 and Q2 USD/MXN forecasts at 18.00 and 18.50 respectively.
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