USD/MXN: Peso to appreciate in the second half of 2021 on vaccination progress – MUFG

In February, the Mexican peso weakened from 20.574 to 20.940 against the US dollar. High uncertainties on health, economic and political situation during the first half will leave USD/MXN trading around 20.30 by mid-year but expectations of better prospects in the second half are set to send the pair to the 19.750 level by end-2021, per MUFG Bank.

Key quotes

“The situation looks quite gloomy due to COVID-19 and controversial policy initiatives. Mexico is now the worst Latin American country in covid related deaths per million inhabitants. The daily death toll continues at more than one thousand, and AMLO administration is almost exclusively focused on trying to speed up the vaccination campaign which has faced hurdles due to lack of supply.” 

“Lopez Obrador sent a bill to congress to reform the electric industry law. The proposal represents a major risk for private players in the sector. Another controversial bill requires Banxico to acquire dollars in cash brought to Mexico by tourists and immigrants. During the first semester, these factors and the uncertainties regarding the outcome of Congress and regional elections in June might keep MXN at more depreciated levels.” 

“Assuming better progress on the vaccination globally and in Mexico during the second semester, we see scope for some MXN appreciation.”