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11 Mar 2015
Mexican peso under pressure – Scotiabank
FXStreet (Edinburgh) - Eduardo Suarez, Chief FX Strategist at Scotiabank, assessed the recent developments in the USD/MXN pair.
Key Quotes
“There has been a lot of talk about whether Banxico is set to increase the size of its daily USD auctions in order to stabilize the peso, after USD/MXN made “all‐time highs”. The move in USD/MXN has also sparked some questions about whether Banxico will pre‐emptively hike rates (before the Fed) in order to stabilize the peso”.
“USD/MXN making new “all‐time highs” should not be a surprise… markets don’t move linearly, or always consistently with fundamentals, but USD/MXN should continually keep making new all‐time highs for the simple reason that Mexican inflation is about 100bps ‐ 150bps higher than the US’s”.
“Hiking before the Fed was discussed by at least 2 board members in the last MPC meeting, hence it cannot be ruled out. However, we believe timing the Fed is extremely difficult, and if we were to somehow isolate the Mexican economy from the Fed, we don’t think domestic growth / inflation dynamics justify hikes”.
“Regarding whether Banxico / the FX Commission is set to increase the size of the daily USD auctions: we don’t rule it out either, but we think increasing the auction amount to a number like US$400mn – US$500mn would have substantial “shock value”, and we would save those bullets for when they are necessary”.
Key Quotes
“There has been a lot of talk about whether Banxico is set to increase the size of its daily USD auctions in order to stabilize the peso, after USD/MXN made “all‐time highs”. The move in USD/MXN has also sparked some questions about whether Banxico will pre‐emptively hike rates (before the Fed) in order to stabilize the peso”.
“USD/MXN making new “all‐time highs” should not be a surprise… markets don’t move linearly, or always consistently with fundamentals, but USD/MXN should continually keep making new all‐time highs for the simple reason that Mexican inflation is about 100bps ‐ 150bps higher than the US’s”.
“Hiking before the Fed was discussed by at least 2 board members in the last MPC meeting, hence it cannot be ruled out. However, we believe timing the Fed is extremely difficult, and if we were to somehow isolate the Mexican economy from the Fed, we don’t think domestic growth / inflation dynamics justify hikes”.
“Regarding whether Banxico / the FX Commission is set to increase the size of the daily USD auctions: we don’t rule it out either, but we think increasing the auction amount to a number like US$400mn – US$500mn would have substantial “shock value”, and we would save those bullets for when they are necessary”.