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CIBC Favour Buying USDMXN Dips Closer To 18.20

MEXICO
  • CIBC expect increasing local risks, especially those related to potential changes in the Judiciary, to tame expectations of rate cuts by Banxico this month and throughout Q3. They have revised their 100bp rate cut forecast for the remainder of 2024 to only 50bp.
  • Although the peso’s high carry remains a strong incentive to fade the recent move higher in USDMXN, CIBC remain wary of the cautious pricing of Banxico's monetary policy path in the next 12 months and the surge in volatility - a situation they don’t expect to subside in the near term. Hence, they favour buying USDMXN dips closer to 18.20.
  • While the landslide victory of the ruling coalition and subsequent comments about judicial reform were the main triggers of the USDMXN move over the last week, CIBC believe there are other under the radar factors that could gain relevance into H2. These include constitutional reforms giving preference to the CFE, and banning genetically modified corn imports, threats to Chinese investment in Mexico during the US election cycle, and fiscal risks into 2025.
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