Mexican peso to rise
Mexico’s new President, Andres Manuel Lopez Obrador (AMLO), has restarted talks with the USA on the North American Free Trade Agreement. US and Mexican officials have particularly covered how much North American content should be included in cars. According to both Jesus Seade (negotiator of AMLO) and Ildefonso Guajardo (current Economy Minister), negotiation are making good progress. Completion is expected by the end of the month or mid-September latest. A second phase of discussions will focus on agriculture.
By completion of this “bilateral” talk phase between the US and Mexico, we expect the Mexican peso to appreciate further against the greenback and approach the 18.45 range. For now, USD/MXN is trading at 18.96.
More USD Selling
What a difference a summer week makes! Just a week ago markets were calling for the end of days. Yesterday the sS&P 500 made an intraday all time high. USD continued to slide against G10 and EM currencies as DXY fell below its 50-dma. The broad risk on sentiment and USD selling makes sense considering Trump’s interventionist retoric toward Powell, optimism surrounding the US-China trade talks and extremely overbought USD positioning. Barring any surge in volatility we anticipate further USD weakness. Treasuries slipped as Trump’s criticism of the pace of interest hike weighted on the short and mid section of the curve. Oil advance helping firm the broader commodity complex as news broke 11 million barrel of strategic reserve would be released, suggesting higher summer demand. Positivity around trade and fading concern over mexico political environment further highlight MXN as the currency to ride the current wave of risk taking on. Todays focus will be on the FOMC minutes.
Overall we anticipate members will be satisfied withe the economic improvement matching their June forecast. Yet further tightening would be unwarrented (ie USD negative). Trump will not be happy as looser monetary condition are not a projected outcome. Markets should expect Trump’s anti-Powell rhetoric to increase.
