Peso Range Expectations Unchanged Despite Rate Hike Uncertainty

Rabobank's analysts expect the Mexican peso (MXN) to trade within a narrow range against the US dollar over the next year. According to Christian Lawrence and Molly Schwartz, USD/MXN will likely stay between 17 and 18 for the next 12 months.

They point out that near-term volatility will be driven by the timing of rate adjustments in both Mexico and the United States. Lawrence notes that there is room for a repricing of the front-end as markets may be pricing in too much in terms of Fed rate hikes.

In contrast, they believe that the 85bp of hikes priced into Banxico over the next year are unlikely to occur. They expect Banxico to hold its overnight rate at 6.50% when it announces its decision on September 24, extending a pause that has lasted since May.

The analysts favor another move below 17 in the coming weeks before returning above 17 in the following months. However, they do not expect volatility to rise enough to lead to a mass carry unwind.