USD/MXN: There is little reason to expect a significant sell-off in Peso in the coming months – Rabobank

Economists at Rabobank are leaving their forecasts for USD/MXN unchanged. Peso is overvalued, it is overbought, but it can stay that way.

Overvalued, overbought but...

We would argue, that there is little reason to expect a significant sell-off in MXN in the coming month. There are a multitude of reasons to expect continued strength. But, at the same time, it is uncomfortable to suggest that a significantly overvalued currency will not just remain overvalued (which is our base case) but will in fact become even more so. This is the position we find ourselves in, however. 

Despite these words, we are leaving our forecasts for USD/MXN unchanged. 16.80 by the end of Q3 and 17.60 by the end of Q4. The risk to our mind is skewed to the downside in the short-term, with the potential for USD/MXN to break through support at 16.70 and text 16.40, while the risk toward the end of the year we see skewed to the upside with the potential for USD/MXN to break 18 by year-end.