Rabobank strategists Molly Schwartz and Christian Lawrence discusses Mexico in its latest Mexican Peso (MXN) Market Musings, noting that the Mexican Peso has gained against the US Dollar (USD) year-to-date but weakened recently. They expect deteriorating MXN carry attractiveness as rate differentials narrow and implied volatility rises, yet remains constructive versus other currencies. They forecast USD/MXN moving higher toward 17.9 over a three‑month horizon.

Carry erosion but relative MXN resilience

"MXN has appreciated 3.57% against USD year-to-date, but has depreciated on a month-to date view."

"Non-commercial speculators net long MXN positioning has been slowly falling, and we foresee further contraction in long positioning."

"We foresee deteriorating MXN carry attractiveness due to narrowing interest rate differentials and rising implied volatility as a driving factor in further MXN weakness, but we still remain constructive of MXN relative to many other currencies as carry demand provides support on a relative basis."

"Banxico has cut the overnight policy rate to 6.50%. The market is pricing in 34bp of hikes by year end, but we expect the Bank to hold."

"USD/MXN implied volatilities have been trading sideways across the term structure for the past month."

"We forecast USD/MXN trading up to 17.9 on a three month view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)