MXN/BRL: Trump risks trigger repricing - Commerzbank

Latin American currencies have undergone quite a correction in recent days, with all currencies depreciating, led by the Mexican peso. This was triggered by an interview with Donald Trump, who said on Tuesday that car factories in Mexico were a 'serious threat' to the US. This reminded the market that a Trump election would be negative for the peso, both because it would likely lead to a stronger US dollar and because it would likely cause serious trade problems for Mexico. USD/MXN has yesterday briefly reached our forecast for the end of 2024, Commerzbank's FX analyst Michael Pfister notes.

Main risks for the BRL remain fiscal risks

"The peso is facing political risks due to the 2/3 majority of the ruling coalition and the recent judicial reform, the monetary policy shift by Banxico and the risks posed by Trump. On the other hand, the Brazilian real continues to suffer from the fiscal risks associated with the government's fiscal plans."

"Despite these arguments, we continue to favour the BRL over the MXN, at least until the end of the year, i.e. we expect BRL/MXN levels to be higher again. Both currencies would likely be similarly affected by a Trump-led US dollar appreciation. On the other hand, the real economies of the two countries have evolved differently recently."

"The main risks for the BRL therefore remain fiscal risks. These are unlikely to disappear in the coming weeks, at least not unless the government unexpectedly embarks on a more solid fiscal policy. For the time being, however, they are likely to take a back seat to the risks affecting the peso. We therefore think that BRL/MXN has the potential to strengthen further by the end of the year."