Mexico’s relatively high interest rates are also the reason why another analyst – ranked top for his MXN calls by Bloomberg – thinks the Mexican Peso will recover after the election sell-off.
Bartosz Sawicki, Market Analyst at Polish brokerage Cinkciarz.pl, thinks the move down after the elections is “overdone” and the Peso is due a correction back to 17.00 in USD/MXN.
The Peso’s recovery will be driven primarily by the Bank of Mexico’s (Banxico) determination to keep interest rates high. Although the bank lowered rates in March from 11.25% to 11.00%, it has been reluctant to follow up with further cuts, and Sawicki thinks this hawkish stance “will remain in place and this will act in favor of the Mexican Peso.”
However, the Peso faces considerable risks in the longer term, according to Sawicki, who sees the November US Presidential elections as a “huge risk event”. If Donald Trump wins, it could undermine trade and immigration agreements between the two nations, leading to a weakening of the Peso. Not only trade but remittances from Mexicans working in the US are key components of USD/MXN flows.
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