Currency Forecast - MXN: Undervaluation and Improving Sentiment Underpin Constructive Stance - MAY 2017

BMI View: High real yields and a significantly undervalued real effective exchange rate underpin our constructive view on the Mexican peso over the coming years . A moderation of bearish sentiment related to the impacts of a Trump presidency on Mexico will provide further tailwinds to the currency , even if near-term volatility cannot be ruled out .

Short-Term Outlook (three-to-six months)

We maintain a constructive view on the Mexican peso (MXN). Negative sentiment towards the currency in the wake of Donald Trump's election to the US presidency is overdone and the peso is significantly undervalued in real effective exchange rate terms (see 'Sound Fundamentals Will Limit Additional Peso Downside In 2017', December 28 2016).

Depreciatory Trend Will Not Last
Exchange Rate, MXN/USD (Weekly)
Source: Bloomberg, BMI

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