Elections in Mexico are approaching and it is no lull for the Mexican peso. Among the four Presidential candidates, polls are favouring Andrés Manuel López Obrador (called AMLO), former Mexico City mayor and member of the National Regeneration Movement, a left-wing political party that attempts its first presidential elections on July 1, 2018.
Accordingly, today’s Bank of Mexico monetary decision remains subdued. Expectations tend towards a 25 bps rate hike (current: 7.50%) due to the Mexican peso's continued weakness and inflation data above 3% target, estimated by May consumer price index y/y at +4.51%. The room for manoeuvre remains however tight, as the overnight rate already rose by 25 bps on February of this year and approaches its historical highs from 2008 (8.25%), a threshold that the central bank would avoid at all cost.
Due to approaching general elections on 1st July, we would rather vary the statement and wouldn’t be too confident that today’s monetary policy meeting will end up with a rate hike. This could occur in 2nd August 2018.
Still, the impact on the peso could be brutal. Currently trading at 20.4583 (year-to-date: +4.06%), the USD/MXN could strengthen strongly with a no-go decision, as the pair approaches its 22.0368 historical high (19/01/2017). Expected to strengthen in the short-term, the USD/MXN is approaching hourly resistance at 20.9605 (15/06/2018 high), heading along 20.5765.
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