Mexican Peso : Range view with downside risks against US Dollar – Rabobank

Rabobank’s USD/MXN analysis highlights recent moves driven by Oil-related Dollar strength and heavy speculative long-MXN positioning. The bank maintains a baseline for USD/MXN to trade mainly between 17 and 18, but warns policy divergence, softer Mexican growth or a carry unwind could lift the pair above 18. Forecasts show USD/MXN dipping to 16.8 in one month before stabilizing near 17.6.

Carry vulnerability and policy divergence

"We maintain our baseline for USD/MXN to trade predominantly between 17 and 18, although potential policy divergence, weaker Mexican growth, or an unwind of crowded long-MXN carry positions could push the pair above the 18-handle."

"USD/MXN has been primarily driven by oil-related USD strength in the past few days, so it is not clear how the pair reacted specifically to the Banxico decision, though the risk that we could see hikes from Banxico would suggest some additional MXN strength."

"Current non-commercial positioning suggests investors are heavily net long MXN, though total positioning has been falling in recent weeks. We would interpret a fall in net long positioning from its current level of 87,782 to below 70,000 positions as indicating that investors are starting to move away from the carry trade."

"If Banxico sticks to its guns and diverges in policy from the Fed due to a softening economy, this would be destructive for MXN going forward, and we could see the pair moving above the 18-handle."

"However, at the time of writing, we are maintaining our outlook for USD/MXN to trade predominantly between 17 and 18."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)