Go pesoBy Peter Rosenstreich
Are we in a bear market? We think not: this is a technical correction rather than a structural shift. So forex fundamentals will not change for now, which makes the Mexican Peso attractive.
The Bank of Mexico raised interest rates 25 basis points while hawkishly signalling future hikes. Inflation has come down marginally, but it’s unlikely inflation will come down meaningfully. We see no dovish policy until 2019, so rates could peak at 5.75%. We also see a soft conclusion to renegotiations of North American Free Trade Agreement. US–Mexican trade is deeply integrated. In all: current USD/MXN strength is a chance to reload shorts.