TD Securities’ view that Banxico will hold rates steady is not a contentious one in terms of the outright decision, as neither market pricing nor economist expectation foresees any deviation from the view for a hold. MXN has weakened following the June FOMC, though economists at the bank remain constructive on the currency, and expect any positive increment in hawkish sentiment to help underpin a stabilization and rebound in the peso.
Hawkish tone of the Banxico to underpin MXN
“The actual policy rate decision should not be contentious. However, the underlying tone of the statement will likely be more meaningful. Given the move in market pricing, particularly following a more hawkish sounding Fed, there will be expectations for a certain tone from Banxico in order to justify the rates market positioning.”
“MXN has received better support from the tighter rates outlook, offsetting increased perception of political risk to some degree. While it's not necessarily the case that MXN performance is contingent on further hawkish Banxico shifts in the near term, in comparison to the rates market (which we believe to be more finely priced), MXN does stand to benefit from a more hawkish tone.”