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MEXICO: Rabobank Forecast USDMXN at 19.50 in Three Months

MEXICO
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  • Rabobank’s base case for the Mexican peso remains unchanged despite the volatility witnessed in recent weeks associated to both domestic concerns and uncertainty surrounding the upcoming FOMC decision. Rabobank are expecting USDMXN to trade in the 18.50-19.50 range for the remainder of the year and hold 3-month forecasts of 19.50 and 21.80 for USDMXN and EURMXN respectively.
  • Overall, while Rabobank view the fundamental backdrop in Mexico as less attractive going forward, sovereign risk premia is a relatively small part of that story. Instead, Rabo think the potential for a clampdown on Chinese firms ‘backdooring’ into the US, and the potential for Chinese content tariffs are a far greater structural concern. Furthermore, the tailwinds of robust US economic growth are likely to act more as headwinds going forward as we see US activity slowing into 2025.
  • Ever since the Bank of Japan decided to hike rates on July 30th, the MXN/JPY carry trade is no longer the powerhouse it once was. Rabo estimates suggest that approximately 58% of MXN/JPY carry trades have unwound since that juncture, and they view future MXN/JPY carry trades as opportunistic and tactical, rather than structural buy and holds.
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  • Rabobank’s base case for the Mexican peso remains unchanged despite the volatility witnessed in recent weeks associated to both domestic concerns and uncertainty surrounding the upcoming FOMC decision. Rabobank are expecting USDMXN to trade in the 18.50-19.50 range for the remainder of the year and hold 3-month forecasts of 19.50 and 21.80 for USDMXN and EURMXN respectively.
  • Overall, while Rabobank view the fundamental backdrop in Mexico as less attractive going forward, sovereign risk premia is a relatively small part of that story. Instead, Rabo think the potential for a clampdown on Chinese firms ‘backdooring’ into the US, and the potential for Chinese content tariffs are a far greater structural concern. Furthermore, the tailwinds of robust US economic growth are likely to act more as headwinds going forward as we see US activity slowing into 2025.
  • Ever since the Bank of Japan decided to hike rates on July 30th, the MXN/JPY carry trade is no longer the powerhouse it once was. Rabo estimates suggest that approximately 58% of MXN/JPY carry trades have unwound since that juncture, and they view future MXN/JPY carry trades as opportunistic and tactical, rather than structural buy and holds.