Analysts from Rabobank left their USD/MXN forecast unchanged and expect the pair to trade back above 19.00 in short order. Yesterday Banxico rose the interest rate by 50bps and announced that it would intervene directly in the market if necessary. Key Quotes: “Banxico announced a surprise 50bp hike to 3.75% at an extraordinary meeting. The FX Commission announced that the daily USD auction mechanism will end and intervention will now be discretional. These decisions followed the Finance Minister’s announcement of budget cuts”. “USD/MXN will likely remain better bid on the back of LatAm stress which we expect to continue. Indeed, a discussion about the Mexican currency is not a discussion about the Mexican economy - a fact we have stressed both qualitatively in our subjective analysis and market observations, and shown quantitatively in our analysis of MXN’s high beta nature and significant but asymmetric correlation to moves in the broader LatAm region.” “Unfortunately, we expect MXN support to prove short-lived. No central bank can turn a depreciation trend into an appreciation and MXN is likely to continue suffering owing to its nuance of being the only fully deliverable, fully convertible LatAm currency that trades 24hrs a day. This dynamic has not changed and MXN will remain the LatAm proxy hedge of choice and we expect it to remain sensitive to broad-based shifts in risk sentiment as well.” “We leave our USD/MXN forecast unchanged and expect the pair to trade back above 19 in short order.” For more information, read our latest forex news.