Mexican Peso: Sideways range against US Dollar intact – Rabobank

Rabobank's Christian Lawrence and Molly Schwartz expect USD/MXN to trade broadly between 17 and 18 over the next 12 months. They see room for both Fed and Banxico rate expectations to be repriced, with the timing of those adjustments likely to drive near-term volatility. It favors another move below 17 in the coming weeks before the pair returns above 17 in the following months.

Range-bound Peso with choppy path

"USD/MXN is expected to trade broadly sideway between 17 and 18 over the next 12 months, with near-term volatility driven by the timing of rate repricing in both Mexico and the United States."

"While we certainly wouldn’t call ourselves USD bears, we do see some room for a repricing of the front-end as it becomes clear that the market is pricing too much in as it pertains to Fed rate hikes."

"On the flipside, we would also argue that the 85bp of hikes priced into Banxico over the course of the next 12 months is unlikely to come to fruition as well so it is the precise timings of these repricings that will be key"

"We expect Banxico to hold the overnight rate at 6.50% when it announces its decision on Thursday, September 24, extending a pause that has now lasted since May, and we expect that hold to persist over the course of the next year, in contrast to market implied pricing of 85bp of hikes over the next 12 months."

"That said, we don’t expect volatility to rise enough to lead to a mass carry unwind, and we tend to favor another move back below 17 in the coming weeks before returning to north of 17 in the coming months."