Banxico is clearly following the Fed rate. The Mexican central bank even changed its agenda in 2015 to carefully follow the Fed meetings and to maintain a rate differential to avoid any capital outflow. Tonight the institution will raise to 7%. Currency-wise, the demand for Mexican peso should continue and we should see USDMXN declining towards 17 peso for one single dollar note. The MXN is one of the best performing currencies of the year at the moment.
On top of this, the now infamous wall is far from being built and will certainly not be erected. Markets are less confident that President Trump could properly deliver his programme and this definitely adds upside pressures on the Mexican peso.
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For the time being, despite the strengthening of its currency, one should not forget Mexico is still paying the price of the lack of investments in its industry sector. In particular, this is in its oil industry, which has infrastructure that is very ancient and does not enable Mexico to be competitive. Yet, pipeline constructions are booming. Domestic oil demand is also strengthening so there is room for further oil development but Mexico needs foreign investments which fell 19% in 2016.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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