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Banorte Believes Real Rates Remain Attractive, Would Buy USDMXN Below 18.00

MEXICO
  • Banorte believes that real rates remain attractive, despite upcoming cuts from Banxico. While they expect Banxico to reduce its benchmark rate by 50bp for the remainder of the year − with the first adjustment of -25bp in August − the expectation of cuts is more subdued compared to other similar EMs such as Colombia.
  • They also still see room for lower rates in 2025 relative to the curve’s pricing, which incorporates only 65% of the cuts they estimate (-200bp). As such, they expect a steeper curve ahead, holding their trade idea on the 2s10s steepener in TIIE-28 swaps, with a target of -50bp vs. -84bp currently. Additionally, ahead of the inflation data to be released on Wednesday in Mexico, Banorte holds their long position in the Udibono Nov’35.
  • In the FX market, USDMXN oscillated within a narrow range between 17.63 and 18.11 last week, lower than the average of the last four weeks of 63 cents. In the face of a more volatile second half of the year, Banorte still sees buying USDMXN below 18.00 as appropriate. This week they see USDMXN trading between 17.80 and 18.50.
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