USD/MXN: A move towards 20.50 is highly likely – Rabobank

Mexican Peso (MXN) was one of the best-performing currencies in 2022. MXN is likely to stay firm in the near term but economists at Rabobank expect USD/MXN to hit 20.50 later in the year.

Support at 18.50 likely to hold

“We disagree with the view that the Fed will cut rates this year, but in the short term, the market is unlikely to change its outlook. This is currently providing support for risk assets across the board. As a result, we see MXN as likely to remain firm on a 1-3 month view, with the pair likely to stay below 19.80. That said, we see support at 18.50 as likely to hold.”

“As we move into the middle of the year and the peak for Fed funds has been reached, we expect the Fed to continue extolling the view that it won’t cut rates this year.” 

“We expect a true consumer-driven US recession this year, but this recession is likely to be accompanied by a more robust labor market than in previous cycles. To our mind, that creates a scenario where the Fed holds through the recession. Risk assets are likely to take a hit when this becomes clear to the market.” 

“MXN will be somewhat insulated given we expect a terminal rate of 10.75% in Mexico (a final 25 bps hike on February 9), but a move towards 20.50 is highly likely.”