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In terms of USD/MXN we have the Banxico meeting today in Mexico and in the US CPI data.

Banxico to Hike Rates By 75 BPS

“We expect another 75 bps hike from Banxico on November 10, but after that meeting, we expect a 50 bps hike on December 15 and a final 25 bps hike on February 9, taking the policy rate up to a terminal rate of 10.75%. If our 75 bps hike call is incorrect and Banxico raises rates 50 bps, then a break above 20 is likely to happen in the aftermath of the decision, but even if a 75 bps hike is forthcoming, we expect USDMXN to trade back above 20 before month-end.” (RABOBANK)

USD Correction to End on Strong Inflation Data

We expect the USD to firm up as well - the USD has been generally weak and the MXN has been strong due to an interest rate of 9.25% which could go up to 10.00 but its overbought and speculators are heavily long the MXN, we have seen the USD come off its lows and expect more strength. The market is seeing a dovish Fed going forward but we have CPI today and expect it to come in strongly and boost the USD.

The Longer-Term Outlook

The Mexican peso could depreciate 20% against the U.S. dollar in the coming months due to tightening monetary policy in the United States, according to Moody’s Analytics model that replicates the monetary and financial conditions of the global economic crises of 2009 and 2020, they see a “significant” correction coming in terms of the MXN.

Carlos González, at Monex financial group, Noted that Banxico might not keep up with the Fed’s interest rate increases in 2023.“It seems to me that next year, as the Fed continues to increase rates, the Bank of México could even say ‘We are staying here’ and I think that factor may affect [the peso],” (CARLOS GONZALEZ) Most currencies have fallen significantly against the USD this year in but the Mexican peso has been firm but that is now about to change in our view.

 

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