USD/MXN: Above 18.53 Open Doors to Record Highs - BBH
According to analysts from Brown Brother Harriman, sentiment toward
emerging markets will be the most important driver for Mexico and they
expect the peso to remain under pressure.
Key Quotes:
“Despite having solid fundamentals, Mexican assets continue to
underperform. With firmer oil prices doing little to help, we think that
general EM sentiment will be the most important driver for Mexico.”
“Fed policy is the big unknown for Mexico. If it hikes at the June 15
FOMC meeting, then Banxico may follow up with a hike of its own on June
30 (…) If the Fed waits to hike at the July FOMC meeting, then Banxico
will have an opportunity to hike at its August 11 meeting.”
“The external accounts are worsening but remain in fairly decent shape.
Lower oil prices have hurt exports, but this has been offset a bit by
weaker import demand.”
“MXN underperformance is one of the biggest puzzles this year in EM.
Higher oil prices have helped RUB become one of the top EM performers
this year, yet MXN is one of the worst. For USD/MXN, a clean break above the 18.53 area would set up a test of the all-time high near 19.45 from February.”
“Support measures could be seen if the moves in the exchange rate start to get messy, but we don't think we're there yet. For now, we expect the peso to remain under pressure, along with the rest of EM FX.”
