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MEXICO: USDMXN Pulls Back After Printing New Cycle Highs, Trump/Banxico Awaited

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • Standing out in global currency markets ahead of Trump’s inauguration is the strong rally for USDMXN. The pair remained well bid throughout the entirety of Thursday’s session despite a moderate dip for the dollar index. After rising 1.85% overall, this trend extended in early Friday trade, with spot printing a fresh cycle high in the process at 20.9382, before dipping back to unchanged in most recent trade.
  • Market participants appear to be on the defensive as details on bilateral relations under a Trump administration, including tariff announcements, are awaited. Furthermore, the softer US CPI data and subsequent dovish Fed repricing may bolster the chances of Banxico accelerating the easing pace in on February 06.
  • On Thursday, CIBC suggested going long CAD/MXN with a target of 14.95 and a stop loss at 14.00. While the tariff threat may look to hit each country equally, CIBC believe the peso would remain most vulnerable given USDMXN sees around 2x the volatility of USDCAD. Additionally, they highlight Mexico’s credit rating concerns leave MXN particularly exposed to further tariff headlines.
  • Separately, Morgan Stanley upgraded Mexican stocks to equal-weight from underweight, citing better a risk-reward from the potential impact of policy coordination with the US. 
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  • Standing out in global currency markets ahead of Trump’s inauguration is the strong rally for USDMXN. The pair remained well bid throughout the entirety of Thursday’s session despite a moderate dip for the dollar index. After rising 1.85% overall, this trend extended in early Friday trade, with spot printing a fresh cycle high in the process at 20.9382, before dipping back to unchanged in most recent trade.
  • Market participants appear to be on the defensive as details on bilateral relations under a Trump administration, including tariff announcements, are awaited. Furthermore, the softer US CPI data and subsequent dovish Fed repricing may bolster the chances of Banxico accelerating the easing pace in on February 06.
  • On Thursday, CIBC suggested going long CAD/MXN with a target of 14.95 and a stop loss at 14.00. While the tariff threat may look to hit each country equally, CIBC believe the peso would remain most vulnerable given USDMXN sees around 2x the volatility of USDCAD. Additionally, they highlight Mexico’s credit rating concerns leave MXN particularly exposed to further tariff headlines.
  • Separately, Morgan Stanley upgraded Mexican stocks to equal-weight from underweight, citing better a risk-reward from the potential impact of policy coordination with the US.