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Goldman Sachs Adjust USDMXN Forecasts

MEXICO
  • In early August, Goldman Sachs highlighted that being short EUR/MXN was a high-yielding way to position for exposures to a wobble in European growth that provides resilience against a hawkish retracement in US yields. Since putting on the trade recommendation, European growth concerns have increased, US yields have trended higher, and MXN had appreciated by roughly 4% versus the Euro at the time of writing.
  • Moreover, within LatAm, the relatively higher ‘carry-to-vol’ MXN has continued to outperform its Andean peers, as YTD trends from a striking MXN 'alpha' has continued. And, while a strong bimonthly inflation print in Mexico (with core measures, in particular, printing record highs) is worth keeping an eye on, this is likely to keep Banxico in a conservative mood, and supports at least 50bp at the MPC meeting on Sep 29th, which, in turn, could keep Peso carry relatively attractive.
  • To reflect these factors, GS shifted their USD/MXN forecasts to 20.00, 19.75, and 19.50 in 3-, 6-, and 12-months, respectively (from 21.00, 20.50, and 20.00 previously).
  • Still, while a short EUR/MXN trade features more moderate volatility than some other short EUR/LatAm expressions, MXN is no 'safe haven'; their trade recommendation could be vulnerable to another reversal in risk sentiment, particularly after such a rapid run; as a result, they tightened stops to protect total return gains.
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