In March, the Mexican Peso appreciated from 18.343 to 18.047 against the US Dollar. Economists at MUFG Bank keep their view that two major risk factors might contribute to some MXN weakening ahead.

High interest rates might keep some attractiveness of MXN

“The Mexican finance minister stated its confidence on the soundness of Mexican banking system, not being impacted by the recent events abroad. In such scenario, we keep our view of moderate rather than sharp MXN weakening in the coming quarters.”

“Additionally, Banxico keeps committed to make inflation to converge to the target in the next years, which means high policy rates for longer in the current scenario of resilient high core inflation, thus keeping the MXN attractive as a carry currency.” 

“We keep our view that two major risk factors might contribute to some MXN weakening ahead. Firstly, the slowdown/recession in the US might hit USD inflows into Mexico. Secondly, Lopez Obrador’s nationalistic policies especially on the energy sector may deter private investments. However, the MXN might continue to be supported by investment and exports from companies reallocating global supply chains into Mexico.”