The Mexican government has been prudent, cutting the federal budget to offset lost revenues due to the decline in petroleum prices. Petroleum is a leading Mexican export. The next BOM meeting is scheduled for 17 March, immediately following the US Fed meeting.

Mexico and Japan share a significant amount of trade, particularly in manufacturing and agriculture, hence the MXN/JPY cross is a significant issue. Both Governors Carstens and Kuroda are being accurate by their claims of the disconnect between their respective currencies and economic fundamentals. The US economy is growing moderately creating demand for products originating or manufactured in Mexico (N.B.: as well as Canada). Hence the economy does have good support. On the other hand, the Asia-Pacific is still experiencing volatility due to deflated commodity prices as well as the transitioning Chinese economy.

It’s reasonable to expect a correction at some point. It’s also reasonable to expect the Peso to strengthen vs the Yen as confidence in the Mexican economy builds along with its US NAFTA partner, and the BOJ continues in its efforts to weaken the Yen.

There’s also one other factor which might cause a strengthening of the Peso. Brazil is Mexico’s continental competitor as the leading emerging economy. The commodity price collapse has impacted Brazil far more than Mexico, and the Brazilian economy has not been as well managed as the Mexican economy, particularly in its management of the Brazilian Real; the country has an accelerating inflation rate, and increasing political instability8.  It seems that Mexico has overtaken Brazil as a leading emerging market in every respect. This surely has not gone unnoticed by the Mexican government nor the Bank of Mexico’s Board of Governors.

Mike Scrive
Technical Analyst
Accendo Markets

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1 It should be noted that the BOM schedules its meeting immediately after the US Fed meeting.
2 Reuters 17-12-2015
3 Reuters 9-6-2015
4 Reuters 15-1-2016
5 Bloomberg 4-2-2016
6 Reuters 21-1-2016
7 Reuters 17-2-2016
8 Reuters 3-3-2016