USD/MXN has returned back to its pre-war in Ukraine levels at around 20.30. Economists at CIBC Capital Markets expect the pair to edge higher toward the 20.90 mark.

Limited room for hawkish surprises

“A look at the ex-ante real policy rate shows that only 80- 160 bps in additional rate hikes (not counting the March decision) are needed to bring the real policy rate to the upper half of Banxico’s neutral real policy range, suggesting limited room for a further increase in rates in the 1Y range.” 

“We find it difficult to believe that the 50 bps pace of rate increases will be maintained for a prolonged period, a view backstopped by the current division among the board members and the negative surprises in economic activity numbers.” 

“Despite the attractiveness of the MXN carry on less convoluted local politics, we maintain our upward USD/MXN bias towards the 20.90 mark from current levels.”