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MEXICO: Analyst Views on Potential Further MXN Weakness

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • CIBC have stated their high frequency model suggests USDMXN could still retest the 21.00-21.50 next week. This is in line with Mexico’s credit briefly flirting with a downgrade to high yield, pushing Mexico’s 5Y CDS to a BB+ credit range (140-175bps) as tariff headlines into next week increase.
  • A reminder that in Credit Agricole’s view, current USDMXN levels do not reflect a real possibility that Trump will follow through on implementing tariffs. Punitive tariffs could be short-lived, according to Credit Agricole, however, “there will be a reaction, which lends itself to a tactical trade”. They previously established a long BRL/MXN trade via a 3-month non-deliverable forward contract with a spot reference level of 3.4950 and a stop loss of 3.4150.
  • Given the high uncertainty, Banorte recommend USDMXN purchases on dips, at least for this quarter, and forecast USDMXN to close 2025 at 21.40, with a trading range of 20.10-21.80.
  • Deutsche Bank have argued lately that tariff risks are not fully priced into MXN having analysed various valuation and positioning indicators. While Banxico has built reserves to combat a sharp depreciation and current account dynamics remain solid at the time, both internal and external developments present material risks for MXN and should outweigh these backstops. Given this misalignment in valuations versus risks, DB have retained their bearish MXN view and expect heightened volatility in the next months.
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  • CIBC have stated their high frequency model suggests USDMXN could still retest the 21.00-21.50 next week. This is in line with Mexico’s credit briefly flirting with a downgrade to high yield, pushing Mexico’s 5Y CDS to a BB+ credit range (140-175bps) as tariff headlines into next week increase.
  • A reminder that in Credit Agricole’s view, current USDMXN levels do not reflect a real possibility that Trump will follow through on implementing tariffs. Punitive tariffs could be short-lived, according to Credit Agricole, however, “there will be a reaction, which lends itself to a tactical trade”. They previously established a long BRL/MXN trade via a 3-month non-deliverable forward contract with a spot reference level of 3.4950 and a stop loss of 3.4150.
  • Given the high uncertainty, Banorte recommend USDMXN purchases on dips, at least for this quarter, and forecast USDMXN to close 2025 at 21.40, with a trading range of 20.10-21.80.
  • Deutsche Bank have argued lately that tariff risks are not fully priced into MXN having analysed various valuation and positioning indicators. While Banxico has built reserves to combat a sharp depreciation and current account dynamics remain solid at the time, both internal and external developments present material risks for MXN and should outweigh these backstops. Given this misalignment in valuations versus risks, DB have retained their bearish MXN view and expect heightened volatility in the next months.