USD/MXN: Yields and nearshoring to power Peso ahead – ING

The Mexican Peso continues to power ahead. Economists at ING expect the USD/MXN to continue its move downward.

Nearshoring in action

“Late February saw Tesla announce that its next gigafactory would be built in Mexico, potentially delivering $5bn of Foreign Direct Investment (FDI). Typically, Mexico sees $30-32bn of FDI inflow per year, so the Tesla news is a big deal. The welcome FDI news comes on top of the MXN providing one of the highest risk-adjusted yields in the world, backed by a local central bank, Banxico, matching the Federal Reserve hike-for-hike.”

“It will probably take either a financial crisis in core markets or Banxico refusing to hike any further to reverse MXN strength.”

“USD/MXN – 1M 18.20 3M 18.10 6M 18.00 12M 17.75”