USD/MXN: Room for a moderate recovery of the Mexican peso over the coming months - Rabobank

According to Rabonak Analyst, You-Na Park,  the recovery of the Mexican peso after the deal, is likely to be gradual. They see USD/MXN at 18.20 towards the end of the year.

Key Quotes: 

“A first breakthrough has been achieved in the NAFTA renegotiations: Mexico and the USA have reached a bilateral agreement. Some details have been published, but there are still a number of open questions. It is also questionable whether Canada will join the agreement. The Mexican peso has reacted very cautiously to the news. Obviously the uncertainty from the market’s view is still too high. We believe that the bilateral agreement has significantly reduced the risk that Mexico will end up without a deal. Although we are also cautious, we see room for a moderate recovery of the peso in the coming months.”

“So far we thought it likely that the positive NAFTA sentiment could turn into pessimism and therefore expected the MXN to depreciate towards 20 against the USD. Against the background of the latest developments we still see some risk for negative headlines or that the NAFTA agreement could even fail, but we consider it much less likely.”

“We therefore expect that the market will increasingly price in a successful deal in the coming weeks and that the MXN will recover against the USD. However, as uncertainty is still high, the recovery is likely to be gradual. We see USD-MXN at 18.20 towards the end of the year.”

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