Commerzbank’s research notes that the Mexican Peso (MXN) had a disappointing September, losing over 4% against the Dollar since late month. Standard macro drivers and Banxico policy guidance explain only part of the move, with positioning and renewed USMCA-related concerns likely contributing to a Mexico-specific risk premium, even as analysts expect sentiment and the US Dollar to eventually turn supportive.

Mexico-specific risks behind MXN slide

“Although yesterday brought some stabilisation, September was a disappointing month overall for the Mexican peso. Since 22 September, it has depreciated by more than 4% against the US dollar.”

“The combination of a strong US dollar and heightened risk aversion likely accounts for much of the weakness seen in many emerging market currencies. When movements in oil prices and US yields are also factored in, only a relatively small residual effect remains for most currencies.”

“In the case of the peso, however, this seems insufficient as an explanation; around a third of its weakness since last week is accounted for by the obvious influencing factors.2”

“It is also possible that the MXN’s weakness was due to resurgent risks relating to the USMCA negotiations. Last week, the new round of negotiations was postponed.”

“While we expect current market sentiment towards emerging markets to improve again, which should support the peso, we also anticipate renewed weakness in the US dollar. Nevertheless, our long-held view that the market should not ignore the risks associated with the MXN has been vindicated.”