USD/MXN likely to stabilise below 19.00 - Commerzbank

According to You-Na Park analyst at Commerzbank, the trade agreement between the US, Mexico and Canada should benefit the peso and turn the focus more on domestic issues, such as high inflation and the inauguration of the new president in December. They expect the Mexican peso to appreciate in the medium term. 

Key Quotes: 

“Basically, for the Peso the agreement is to be seen as positive. Nobody expected Mexico to emerge as a winner from the negotiations anyway. The new agreement is going to be called USMCA. The treaty is going to be signed by all three partners at the end of November. After that the different parliaments have topass it. As a result there is some residual risk that the deal will not be implemented after all. However, this risk is likely to be quite slim. Moreover further details on the agreement will emerge only slowly over the coming weeks, so against this background the peso euphoria is cautious.”

“There are other factors that prevent a significant appreciation of the peso. The US central bank’s rate hikes put pressure on the EM universe.”

“Peso recovery should continue next year The USMCA deal means that one important factor of uncertainty has been more or less overcome. Against this background USD-MXN is likely to stabilise below the 19 mark over the coming months. The central bank is likely to remain true to itself and hike interest rates further if required. We do not see any issues for the peso on this front either. Only when the newly elected President Andres Manuel Lopez Obrador (or AMLO for short) assumes office on 1st December might this  result in some uncertainty about the political future. However, AMLO had already struck a more moderate tone after his election in July. That means there is probably also nothing in this respect to prevent medium term moderate peso appreciation. We therefore assume that the peso will appreciate against USD over the course of the next two years.”