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ING Say Banxico Move To Slow Not Reverse The USDMXN Trend

MEXICO
  • ING have highlighted that unlike Chinese authorities, Mexican authorities are seemingly expressing a view that the peso is too strong.
  • Given the peso has been a prime beneficiary of the carry trade, markets should not underestimate the risk of a further correction higher in USD/MXN ahead of this long US weekend.
  • Yet USD/MXN has traded below 17.00 for very good reasons, including high carry and nearshoring trends. And given ING’s view that the dollar does turn lower next year, they see the Banxico move as slowing rather than reversing the USD/MXN trend.
  • Two further points highlighted by ING: returns on the MXN carry trade may now come more from carry than nominal MXN appreciation, and speculation may grow in the TIIE market (Mexican swap curve) that Banxico may prefer early rate cuts after all if it does not want its currency to strengthen much more.

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