:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/IG3UAWPRCZDQNCUFNKWN774L34.jpg "The March inflation data for Mexico will be released this week, and if it confirms the downward trend, will put less pressure on the Bank of Mexico, although it might increase speculation as to whether it should raise interest rates in May.")
Bloomberg Línea — The Mexican peso (USDMXN) will continue to appreciate this week to reach levels of 17.85 against the US dollar, and it is expected to continue gaining ground against the greenback in the short term, according to analysts.
Risk appetite returned to global financial markets in the last week of March, favoring the Mexican peso, which, in addition, continues to be supported by the attractive 625-basis-points differential between Mexico’s interest rate and that of the US.
“We believe that the Mexican peso could enter a short-term consolidation process, at around 18 to the dollar, and limit further appreciation if inflation turns out lower than expected,” Banorte analysts said in a note.
On Monday, the local currency traded above the psychological level of 18 pesos per dollar with a high of 17.96 per dollar.
March inflation data for Mexico will be released this week, and if it confirms the downward trend, will put less pressure on the Bank of Mexico, although it might increase speculation as to whether it should raise interest rates in May.
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Market expectations are for a 25-basis-point increase to bring the benchmark to 11.5%.
“We do not rule out profit-taking derived from a long positioning of more than $1.35 billion that the market has had since March 14,” Banorte said.
Levels estimated for the peso
Banorte analysts estimate a trading range between 17.85 and 18.35 pesos per dollar; while strategists at CiBanco project that the currency will fluctuate between 17.80 and 18.45 per greenback.
The US banks’ element seems contained. As a result, traders’ attention is likely to focus on the delivery of economic data in the US, according to strategists at CiBanco.
“There is speculation that banking stress and a potential credit crunch will increase chances of a hard landing for the world’s largest economy. In this respect, in the absence of negative commercial banking news, the main reference will be the March US employment report,” they wrote in a note.
The US is expected to add 200,000 jobs. The release of the US ISM Manufacturing and China PMIs is also expected.
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