USD/MXN: Stay long MXN and collect the carry, but protect yourself – Rabobank

Banxico will announce its latest rate decision on Thursday, May 13. Economists at Rabobank expect the Bank to leave rates on hold at 4.00%, as forecast by both analysts and traders alike. Meanwhile, the USD/MXN pair is set to primarily trade a 19.50-21.00 range over the coming months with a bias towards the 19.80-20.60 region.

Foreigners have left the Mexican government bond market 

“Analysts and traders are united in expecting no changes at this week’s meeting, with the policy rate forecast to remain on hold at 4.00%. We concur.”

“We still expect USD/MXN to primarily trade a 19.5-21.0 range over the coming months with a bias towards the 19.8-20.6 region.”

“MXN remains at the mercy of broad-based shifts in risk sentiment rather than domestic developments, and this is likely to remain the case in the short term.”

“The resilience of MXN is all the more impressive when you consider the outflows from the government bond market this year, with foreign holdings slumping to multi-year lows across the curve. In fact, we would argue that this further reduces the risk of a disorderly sell-off when Mexico eventually loses its investment-grade sovereign rating which we see as likely to happen in the second half of next year.”