📝Expect Mexican Peso to Outperform EMFX Peers: Rabobank

USD/MXN implied vols have been the most sensitive to tariff talk, with 1w vol whipsawing dramatically around major tariff events. Vols have depressed substantially from April highs, with 1w vols down 10.092ppt from 19.517% on April 7 to 9.425% at the time of writing–May 8. With this depression in the near term comes a complete reversion of the USD/MXN vol term structure, as 1w vols have fallen from being the highest term to the lowest within the span of one month.

Given Trump’s recent announcement, in which he excludes Mexico from reciprocal tariffs, and additional announcements praising the USMCA, MXN has actually come to be one of the lowest vol USD crosses, and Figure 7 displays this clearly as USD/MXN vols have crossed below the FX (excluding MXN) vol index.

USD/MXN broke below the 200-day EMA on April 17 and has been trading sideways in a very tight range having found support at the 19.47-level. This recent trend suggest a new range in the coming weeks, and we expect to see USD/MXN trade in the 19.1 to 19.9 range on a 3-month view. In three months time, Trump’s 90-day reciprocal tariff delay will have expired, but the myriad possible outcomes beyond this horizon make having a high-conviction outlook difficult. That said, we do expect MXN to outperform most of Latin America, as well as broader EM, even though we see MXN depreciating against USD in H2.

- Rabobank