Mexican peso likely to rebound moderately against USD, central bank likely to further cut interest rates

The Mexican peso has been strongly impacted from the outbreak of the corona pandemic. The high risk aversion and the fall in oil price also contributed to the peso’s depreciation, noted Commerzbank in a research report. Meanwhile, the situation on the financial markets has calmed down a bit and the peso has steadied against the US dollar in recent weeks.

If the easing of the corona restrictions that has not started does not trigger a second wave and is successful, the situation on the markets should rebound further. This should advance the peso. Partially, the peso’s depreciation might have been exaggerated because of the high level of uncertainty regarding the corona virus.

“We therefore expect a moderate recovery of the MXN against the USD in the course of the year”, said Commerzbank.

However, phases of increased risk aversion might take place repeatedly. Especially, the forthcoming publications of economic data, which will underline the consequences of the restrictions on the global economy, might hurt the sentiment.

“We do not expect a return to pre-crisis levels in USD-MXN for the time being. The Mexican economy will fall even deeper into recession this year. The Mexican central bank is likely to react to the economic weakness with further interest rate cuts. And last but not least, the policy of the Mexican president, whose decisions have often unsettled the financial markets, bears risks for the economic recovery and thus for the peso”, added Commerzbank.