By Alfonso Esparza
* Last month inflation dropped below CB target.
* Current inflation is 3.89%. The Banxico has a 2 - 4 % inflation target.
* Mexican Central Bank has signalled it will hold rates expects inflation to drop to 3% in 2015.
* Economic recovery is subject to macro factors, but inflation MXN positive.
* The USD/MXN has been trading in a tight range since the first week of February.
The Mexican peso started the year dropping versus the US dollar given the Fed’s tapering had started and triggered outflows from emerging markets. The Mexican government continued to push forward economic reforms and in February scored two of the biggest victories. The optimism helped the MXN start an appreciation trend that has continued at a slow pace from 13.30 to today’s trading below 13.00 a peso away from the 52 week low.
The USD/MXN has been trading in a tight range since the first week of February. The Mexican stock market has decoupled from the US market and was able to gain last week. The MXN has hit 11 week highs after US manufacturing seems to have turned the corner. The positive correlation between positive US/Mexico fundamental indicators and the direction of the Peso is back in play.
Tomorrow the Central Bank will auction $1.5 billion of a 20 year bond. The coupon will be 7.75 percent. Which if successful will boost the MXN versus the USD.
MXN Economic Calendar
Tuesday - MX Gross Domestic Product (YoY) (Jan) Previous 0.7%
Wednesday - MX 12-Month Inflation (Mar) Previous 4.23%
Friday - IMF Meeting All day