USD/MXN: Making a full recovery from Trump - ING

Gustavo Rangel, Research Analyst at ING, notes that the MXN outperformed its LATAM peers in recent weeks, becoming the chief beneficiary of the supportive risk appetite for EM FX in the region.

Key Quotes

“For now, the carry seems high enough to compensate for the peso’s chief medium-term risks: the NAFTA update and the final outcome of the 2018 presidential race.”

“Further appreciation is likely if appetite for EM FX remains robust, especially as more cautious investors should continue to shun exposure to Brazilian assets, amid that country’s fragile stability.”

“The higher hedging cost could make the MXN more vulnerable to bouts of risk aversion later in the year, however. NAFTA negotiations will intensify later in 2H while political risk (moderate for now) could intensify after the turn of the year, if polls suggest leftist firebrand Lopez Obrador could win in the July 2018 ballot.”