Banxico likely to follow the FED - TDS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 17, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - According to analysts from TD Securities today the central bank of Mexico (Banxico) will follow the Federal Reserve and will raise the reference interest rate.

    Key Quotes:

    “For Banxico’s monetary policy decision today we are in line with the balance of market expectations (which are skewed 4:1) in favour of a 25bp rate hike. While there does not appear to be a screaming need for a rate hike from Banxico at this meeting, perhaps the most compelling argument for a hike has been the repositioning of policy meetings (earlier this year) to follow the Fed, which has obviously stoked expectations that there will be an automatic hike following in the FOMC’s footsteps.”

    “There is obviously also the question as to just how much Banxico will keep itself tethered to the Federal Reserve through the duration of 2016, with the key policy concern being the trajectory of MXN in the wake of the outset of Fed policy normalization, and any vulnerability to domestic price stability emanating from potential peso depreciation.”

    “The main argument put forth for Banxico synchronization with the Fed, at least near the start of the hiking cycle, is to allow for Banxico to insulate MXN from the potential pressure of rising US yields. We’ve noted that early 2016 meetings are planned to coincide with the Fed more notably than those in the middle to later stages of this year.”

    “Since consensus expectations for Banxico are so skewed towards a hike, we’d say that the risk reward favours positioning for a dovish hike, or the risk of no hike at all. We think that the MXN-positive reaction to the rate hike will be less than the potential MXN-negative reaction to no hike, or a dovish hike once the dust settles after the statement. This argues for positioning short MXN in the very near term, though we continue to like MXN structurally, particularly against CAD where we hold a target of 11.85 from an entry of 12.65.”
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