📝See Renewed Interest For MXN Carry Attractiveness: Rabobank

Many USD/MXN correlations deteriorated over the past few months given elevated market uncertainty. However, as tensions cool and Mexico’s trade outlook starts to clear, correlations have begun to re-emerge. As highlighted above, the MXN carry trade is once again starting to gain prevalence, and as such, MXN’s correlation with JPY is now creeping into the significant range. MXN has historically had high correlations with JPY in times when the carry trade was either highly profitable, or spiraling out of control. During the mass unwind of the MXN/JPY carry trade in August 2024, intraday USD/MXN and USD/JPY charts almost traced each other one-to- one. The MXN-JPY correlation is above the 0.25-level needed to indicate a significant relationship, and is currently showing the strongest direct correlation since April 2024. In the absence of event risk which would normally affect MXN or JPY, we would expect this level of correlation to increase as the prevalence of the carry trade rises.

We think there is more room for MXN to appreciate in the short term and see USD/MXN trading at 18.6 on a 1-month view, but do not expect this sentiment to last indefinitely. We see volatility rising again this summer and USD/MXN back at 19.5 by year-end.- Rabobank