Mexican Peso : Range view with downside risks against US Dollar – Rabobank

Rabobank's USD/MXN analysis reveals recent movements fueled by oil-related strength in the US Dollar and substantial long-MXN speculative positions. The bank anticipates the USD/MXN pair to hover mostly between 17 and 18, but warns that diverging policies, weak Mexican growth, or an unwinding of crowded long-MXN carry positions could push the currency pair above 18.

Current forecasts indicate a potential drop to 16.8 within a month, before settling near 17.6. Rabobank maintains its baseline for the USD/MXN pair to predominantly trade within the 17-18 range, although policy divergence, weaker Mexican growth, or a reversal of long-MXN carry positions could lift the currency above the 18 mark.

Recent non-commercial positioning suggests significant net long-MXN investments; a dip in net long positioning below 70,000 positions may indicate investors are distancing themselves from the carry trade. If Banxico maintains its policy divergence from the Fed due to economic softening, this could be detrimental to the MXN, potentially pushing the pair above the 18-handle. However, as of now, Rabobank anticipates the USD/MXN pair to primarily trade between 17 and 18.