Moderate appreciation of Mexican peso to continue if oil prices rise over rest of 2016

Mexico’s outlook was changed by Moody’s yesterday to negative (A3-) from stable. There were some rationales behind changing the country’s outlook. Firstly, the government’s fiscal consolidation attempts are expected to face challenges from lower economic growth and external headwinds. Secondly, fiscal consolidation process might be weakened due to contingent liabilities.

In certain ways this reflects the view that Mexico illustrates good but worsening fundamentals, according to Commerzbank. However, investor sentiment is unlikely to have any significant effect with the change in the outlook, adds Commerzbank. The Mexican currency is cheap and the yields are attractive. Moderate appreciation of peso can comfortably continue if oil prices rise in the remainder of 2016, notes Commerzbank.