The Mexican Treasury and central bank's FX commission announced some measures to provide liquidity in FX markets.
- Daily auction without minimum price: increase from 52mn to 200mn USDMXN.
- Daily auction with minimum price: decrease in the minimum price from 1.5% to 1.0% above last FIX.
Both measures will be in place starting tomorrow until September 30, when the FX commission would reassess the parameters of such auctions. It is worth keeping in mind that they could step in at any time.
According to Barclays, implications of these measures can be,
- These measures signal the discomfort of the Mexican Treasury and the central bank regarding the recent MXN weakness.
- Even though USD/MXN volatility remains contained and the cross has not underperformed most of its LatAm peers, the FX commission's concerns have likely increased as the timing for a lift-off in Fed policy rates draws near.
- These measures are meant to act as partial substitutes for the rate hikes already priced into the short-end of the TIIE curve. Although rate hikes will be deployed, authorities are reminding the markets that it has other tools available to tackle FX market instability.
- The disappointing performance of the Mexican economy, along with very low inflation and muted pass-through, could be a few reasons the central bank may not want to tighten monetary conditions.
- As such, if these preemptive measures are successful in stabilizing MXN, we believe this will support our 1y TIIE receiver recommendation
- USD/MXN has reached 16.50. The FX commission's announcement and heavy short positioning in MXN argue for staying on the sidelines.
