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Rabobank Believe Peso Strength Near Peak, Expect USDMXN Above 18.00 By Year-End

MEXICO
  • Rabobank expect ongoing short-term MXN strength but believe this strength is near peak levels and that USDMXN spot will move back above 17 when the Fed begins its cutting cycle in September. They expect Banxico to cut rates 25bp to 10.75% at the June meeting. The rest of their forecast for 2024 suggests three additional cuts before the end of the year, bringing the rate down to 10.00%, while leaving room for an additional potential pause.
  • There is no significant spike in implied volatility around the election, and so Rabo do not expect the outcome to trigger major moves in MXN. They have maintained the same path of their forecasts but have rolled them forward to reflect the passage of time, maintaining MXN strength in the near-term driven by subdued FX volatility.
  • The basis of this assumption may seem at odds with heightening geopolitical tensions and diverging rate paths, but markets have been surprisingly resilient thus far, coupled with the return of vol sellers.
  • Rabobank do expect to see a rise in volatility in the second half of the year as a result of the US elections, and narrowing rate differentials as the US begins to cut rates, and expect to see USD/MXN above 18 by year-end.
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