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USDMXN Slips Briefly Below 18.00, SocGen on Mexico

MEXICO
  • USDMXN has just printed a fresh trend low of 17.9830 amid resilient price action in major equity markets following the above expected US ISM Services data. The next immediate support is seen at 17.9401, the 2018 lows.
  • SocGen have noted that in addition to high carry led by a hawkish Banxico stance, increased talk about near-shoring is said to be driving the MXN. They believe, it’s probably too early to say whether the MXN strength reflects an increase in near-shoring talks. In any case, near-shoring prospects could be undermined by Mexico’s weak productivity growth and tight labour market.
  • Outside the trade and manufacturing sectors, the Mexican economy is struggling with two major issues – low productivity growth and an oversized informal sector. There is scope for both to improve as the Mexican economy becomes more aligned with global supply chains catering to manufacturing (and other relevant sectors) for consumers in the US and if the nearshoring theme turns out to be valid.
  • They state that almost all the real exchange rate appreciation is attributable to currency appreciation as inflation challenges have persisted in Mexico. Indeed, Mexican core inflation appears to be the most stubborn in the region and could take several quarters to return to the Bank of Mexico’s target range.
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