USD/MXN falls to test daily lows near 19.50, volatility remains elevated
- Mexican peso recovers after testing monthly lows, supported by a recovery in equity markets.
- USD/MXN drops for the first time in almost two weeks.
The USD/MXN is trading near daily lows at 19.49 after testing last week top at 19.89. The improvement in risk sentiment on Monday helped emerging market currencies recover after tumbling last week.
After an impressive rally from 18.55 to 19.89, the USD/MXN is correcting lower for the first time after nine trading days. The rally found resistance in a long term downtrend line that stands at 19.89. A break higher should push the pair back above 20.00.
MXN outlook
“We assume that there has been some market overreaction in the short-run and there is room for some MXN appreciation up to end March. Anyway, we see room for a gradual MXN depreciation in the next quarters. In the short-run, there is the impact of Coronavirus and a potential harsh spill over to the US economy would impact FX flows (trade, investment and wage remittances) to Mexico”, explained MUFG analysts. According to them, another risk factor refers to the uncertainty of the US presidential election. “And we cannot discard the risk of GDP growth being weaker-than-expectation of +1% in 2020, which might spark populist actions by AMLO administration, therefore impacting fiscal stance and investments.”
Overall, risks for the Mexican peso seem to be on the rise with political factors set to kick in during later in 2020. After a good performance during 2019, the outlook has worsened for MXN. No good news is expected from the economy, and Banxico will likely keep cutting rates.