USD/MXN soars to highest since March on NAFTA concerns

• Mexican peso among the worst performers as NAFTA 5th round of talks begin. 
• USD/MXN at highest since March, up 1% today. 

The Mexican peso is falling sharply across the board on Wednesday as NAFTA fifth round of negotiations starts. The USD/MXN is up for the fourth day in a row and today climbed above October highs, hitting levels last seen back in March. 

USD/MXN end consolidation with a bullish breakout 

After moving for weeks in a range between 18.90 and 19.30, USD/MXN broke to the upside and reached at 19.37, the highest level since March 15. The combination of a stronger US Dollar against emerging market and commodity currencies and a weak peso pushed the pair sharply to the upside. It is up almost 1%. 

“USD/MXN has traded largely in the 18.50-19.50 range since October.  Since November began, that range narrowed to roughly 19.00-19.25 before today’s breakout to the upside.  To put things in perspective, the pair has only retraced a third of its drop this year. Major retracement objectives of the January-July drop in USD/MXN come in near 19.7445 and 20.2860”, wrote analysts from Brown Brothers Harriman. 

Concerns about NAFTA negotiations continue to affect the Mexican peso. Yesterday US Commerce Secretary Wilbur Ross suggested that the US can pressure Mexico and Canada because they have more to lose if the talks collapse. Today in Mexico, the fifth round of negotiation started. Cabinet-level officials from the three nations will skip attending the talks for the first time, leaving negotiations to their technical teams. 

In Mexico, President Peña Nieto will announce his nominee to replace Agustin Carstens as Bank of Mexico governor. Finance Minister José Antonio Meade is the lead candidate, but also he is seen as a potential presidential candidate for the 2018 elections. Next month, the PRI party will officially name its presidential candidate. “While neither event carries much risk, we note that uncertainties facing Mexico should keep investors cautious”, concluded BBH analysts. 

Mexico risks should keep investors cautious - BBH