Mexican Peso: Carry flows outpace fundamentals – BNY
BNY’s Geoff Yu highlights that Mexican Peso (MXN) carry demand is surging ahead of Banxico’s decision, with MXN the best-bought currency on a weekly basis. However, weak volumes, deteriorating equity flows and only modest sovereign bond demand temper the story.
BNY’s Geoff Yu notes that demand for Mexican Peso (MXN) carry trades is increasing ahead of Banxico's decision, making MXN the most bought currency weekly. However, weak volumes, declining equity and bond flows pose challenges to this trend. Yu suggests Banxico's easing, reduced real rates, and US trade uncertainties hinder MXN's potential for sustained strength.
The currency enters the Banxico decision with strong flow momentum, ahead of the asset's intrinsic value. Forward and swap demand has surged recently, positioning MXN as the best-bought currency weekly and fifth-best monthly. Spot demand has also been firm, but the overall picture is less compelling due to weak volumes, deteriorating equity flows, modest bond demand, and lack of energy or terms-of-trade premiums.
The disparity between recent buying and long-term holdings hints at an unsustainable rally that could reverse, as it did after June's surge. Thus, a cautious approach is recommended: await further strength to adjust positions or add protection, and consider alternative Latin American carry markets with stronger asset sponsorship backing.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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