Rabobank Warns of Downside Risks for MXN as Policy Divergence Looms

Rabobank's analysis of the Mexican Peso (MXN) against the US Dollar (USD) points to a range-bound view, but with downside risks. The bank notes that recent moves have been driven by oil-related dollar strength and heavy speculative long-MXN positioning.

The baseline for USD/MXN is between 17 and 18, but policy divergence, softer Mexican growth, or an unwind of crowded long-MXN carry positions could push the pair above 18. Forecasts show USD/MXN dipping to 16.8 in one month before stabilizing near 17.6.

Rabobank also warns of a potential carry vulnerability and policy divergence between Banxico and the Fed, which could lead to additional MXN strength if hikes are implemented by Banxico.