The initial market reaction to Banxico’s cut to 5.5% suggests that the decision was not more dovish than investors were expecting, according to analysts at CIBC Capital Markets who forecast the MXN gaining some ground as COVID-19 issues stabilize.
“We expect the overnight rate to end 2020 at 4.0%, given the lack of a significant fiscal response and the quick and steep deterioration of growth prospects.”
“We continue to see value in short USD/MXN positions on spikes toward the 25-25.55 range. No news is good news for the MXN, as the market has already priced in most of the country’s fiscal uncertainties and political risks.”
“Moreover, Mexico’s considerable exposure to the US makes the country a primary beneficiary of a potential stabilization of the COVID-19 outbreak into late Q2 to Q3, while the MXN high carry relative to regional currencies should revive the market’s interest in the currency alongside any signs of improvement in the global economy.”
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.