Mexican Peso Outlook (1-3 Months)– PRI erosion

On June 7, voters in Mexico will elect 500 deputies and nine states  will hold gubernatorial elections. With regards to gubernatorial elections, PRI stands to lose the most because it currently runs six of the nine. PAN runs two and PRD one. PAN seems to be the party that could gain the most with polls indicating strong probability of winning two additional governorships from PRI; San Luis Potosi and Colima. With regards to Legislative elections, the last Reforma Poll shows a decline in voter intention to support PRI by about 7-8pp from the current breakdown. The emergence of a new party complicates things. 


Lopez Obrador is a well-known political figure in Mexico but up until now, his supporters have been included in the PRD party. MORENA may take up as much as 8% of the seats, with only a quarter of that coming from PRD. Support for the third alternative, the PAN party, may therefore increase in relation to most other parties. Security is largely to blame for a decline in Pena Nieto's PRI support. Low oil prices may also be an issue. 


"The decline in oil price may have inflicted negative collateral damage on fiscal spending. Yet, most recent retail sales data points to gradual recovery taking hold since November, and domestic demand seems robust despite oil prices. Consumer spending and exports seem to be running at a reasonably robust pace. Thus, we believe monetary policy is too easy. This could trigger USD/MXN spike higher towards 16.00 in the coming month or two", according to RBC Capital Markets.