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Citi on USD/MXN: Weekly Close Suggests Test Of 2018 Lows

MXN
  • USDMXN dived towards 18.30 - a five-year high for the Peso. Citi’s options traders would position for a short-term retracement here, though the weekly close through key support at 18.50 suggests 17.94 may be tested next.
  • Their local trader thinks that another reason behind MXN strength is current account related ("Citi estimate a CA deficit of 0.6% of GDP for 2023" vs 0.8% in 2022).
  • Regarding foreign holdings of local Fixed income, there were outflows of $2bn after a big inflow in December ~$7bn.
  • Citi traders think that they will see more interest in Mbonos and cetes after a big correction in local rates (~ +50bps), thanks to the surprise hike from Banxico and the accompanying hawkish tone. More inflows from portfolios should bolster MXN resilience ahead.

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