Economists at CIBC Capital Markets expect the pair USD/MXN rise as Banxico will break ties with the Fed with a rate cut this month.
Banxico will separate from the Fed in March
With no change in the convergence of inflation towards the 3% target and with Banxico opening the door to a rate cut in March, we maintain our forecast for consecutive rate cuts starting next month and our overnight rate forecast by the end of the year at 9.25% (compared to the 9.65% expected by the market).
The attractive carry of the MXN has been the main driver of its resistance since the beginning of the year. However, an earlier-than-expected Fed disengagement and increasing odds of Banxico accelerating the pace of rate cuts point to a rapid dissipation of MXN carry. This underscores the potential for strong USD/MXN upside moves amid already large net long MXN positions by non-commercial (speculative) traders.
We maintain our forecasts for the USD/MXN for the first quarter and the second quarter at 18.00 and 18.50 respectively.
Source: Fx Street
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