USD/MXN: Concerns on AMLO government policies to limit peso appreciation – MUFG

In January the Mexican peso depreciated against the US dollar from 19.907 to 20.262. Uncertainty over the health outlook and some controversial government policies will continue to weigh on economic recovery, limiting the pace of MXN appreciation expected ahead, in the view of economists at MUFG Bank. 

Key quotes

“The pandemic has worsened sharply in Mexico in January, with a high record number of daily deaths. In Mexico city, hospital occupation remains above 90% and the lockdown was extended at least through 31st January. Federal government hesitates to impose stricter measures and potential challenges with vaccine rollout mean the health outlook remains very challenging.” 

“Business confidence might take another hit with the elimination of autonomous agencies announced by the president, starting with those created by decree, followed by those already included in the Constitution, which requires qualified majority support at the congress.” 

“The first measures announced by Mr. Biden are favourable to relation with Mexico. Despite this more collaborative relation between the two countries, some tensions might arise especially on security and energy policies. On the latter, AMLO administration to prioritize state-owned companies will keep being criticized by US authorities.” 

“As for the MXN path ahead, we keep our view of some appreciation driven by the external environment, but not a sharper appreciation, once it is limited by the health outlook and concerns on AMLO government policies.”