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USDMXN Remains in Consolidation Mode, Fiscal Uncertainty Lingers

MEXICO
  • While today’s USDMXN (+0.69%) uptick is almost entirely attributed to the hot US CPI and associated moves for US yields and the dollar, fiscal uncertainty lingering in the background could have the potential to test the continued resilience of the peso. Sure enough, Bank of America were on the wires earlier today, claiming that it’s the end of the super peso and that USDMXN is to reach 19.50 next year.
  • Earlier reports indicated that the government has exempted state-owned Pemex from a series of taxes for a period of four months, effectively giving the debt-ridden company billions of dollars more in liquidity. While this is likely an attempt to reassure investors following a double-credit downgrade last Friday by Moody’s Investors Service, it may be adding to recent fiscal concerns.
  • A few weeks ago, we noted comments from a former Banxico Deputy, stating that “the extraordinary fiscal relaxation for 2024, aimed at unproductive works and subsidies practically impossible to reverse, constitutes not only a hurdle to Banxico's efforts to contain inflation but, above all, a serious government irresponsibility,” he added.
  • For now, USDMXN remains in consolidation mode, and a breach of 17.5653, the Dec 5 high, would be required to highlight a stronger reversal.
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