USD/MXN: Only a Banxico surprise is likely to move the peso significantly – Commerzbank

Compared with other EM currencies the peso was so far able to stand up quite well against USD. Today, Banxico is expected to hike rates by 75 basis points. However, a lot seems have been priced in by the market. Therefore, the peso is unlikely to benefit from a hawkish central bank, economists at Commerzbank report.

Upside risks for USD/MXN

“There seems to be unanimous agreement amongst analysts polled by Bloomberg that the Mexican central bank Banxico will hike its key rate for the third consecutive time by 75 bps to then 9.25% and it is also fully priced in on the market. The continued price pressure moreover points towards a hawkish statement in which Banxico signals further rate hikes.”

“We assume that Banxico will continue its tightening course. It will probably not want its speed to drop below that of the Fed so as to support the peso, as continued peso weakness would further intensify price pressure. The market seems to expect key rates to reach 10.4% by year-end. Overall, a lot seems to have been priced in by the market so that only a Banxico surprise is likely to move the peso significantly.”

“The expected momentum is likely to be dampened as a result of the recession expected for the USA. The quarrels about the trade agreement between the US, Canada and Mexico, the so-called USMCA, about Mexico’s energy policy also constitute a fly in the ointment.”

“In the current market environment with continued USD strength, we, therefore, continue to see upside risks for USD/MXN.”