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USD/MXN: Peso to remain underneath stress within the short-term – Commerzbank

You-Na Park, analyst at Commerzbank, affirms that the newly elected president Andres Manuel Lopez Obrador, created uncertainty earlier than his inauguration that the market is unlikely to digest this so shortly. They see USD/MXN at 20.20 in March 2019 and at 20.00 by September. 

Key Quotes: 

“The Mexican peso has been underneath devaluation stress since mid-October. The principle motive is a call by the newly elected President Andres Manuel Lopez Obrador (also called AMLO), who might be put in on 1 December. Primarily based on a referendum, he determined to cancel the development of a brand new airport (…) For the market, this determination was shocking since AMLO, following its election as president on 1 July, initially struck a conciliatory tone, easing off traders’ concern concerning the shift to the left in Mexico. Therefore the current determination triggered the peso to depreciate sharply towards the USD. The pair is now buying and selling properly above the 20.00 degree.”

“In December, the central financial institution is prone to hike as soon as once more (…) Subsequent yr, we anticipate the central financial institution to depart its key rate of interest unchanged, as inflation is then prone to slowly decline once more. In our opinion, nevertheless, it’s nonetheless too early for a fee lower subsequent yr as a consequence of home political uncertainties. USMCA not but lower and dried.”

“It might nonetheless be a bumpy highway till the settlement might be lastly carried out, which is to be anticipated in the middle of subsequent yr. Along with home political dangers, this could result in elevated volatility within the peso within the coming months.”

“The peso is prone to stay underneath devaluation stress in the meanwhile. As a result of there may be numerous uncertainty concerning the political way forward for the nation. Even earlier than the vote in July, a potential election of Lopez Obrador as president was seen sceptically by the market. Now plainly this skepticism was justified, and it appears to be like moderately as if hopes had been untimely after the primary conciliatory tones of Lopez Obrador. However we do not wish to sound too pessimistic. The left-wing populist views of Lopez Obrador will definitely be noticeable in his political selections. However we do not imagine it is going to come to a really important change relating to the political course of the nation.”

“For the peso this implies in our opinion that it stays underneath devaluation stress in the meanwhile. In the middle of subsequent yr, the market will in all probability have develop into accustomed to the brand new president’s type, and it’ll more and more develop into obvious that the shift to the left might be average. In opposition to the backdrop of a reputable central financial institution and excessive rates of interest, the peso ought to then recuperate considerably.”

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