Mexican peso price forecast December 14 2020

2020-12-14

Four reasons to buy Mexican peso. Forecast as of 14.12.2020Dmitri Demidenko

The recovery of the local economy, the US GDP growth, high demand for emerging markets’ currencies, and the increase in international trade make it profitable to sell the [USDMXN][1].

Quarterly peso fundamental forecast

Donald Trump’s attacks on the Fed in 2018-2019 are nothing compared to how other governments interfere with the central banks in other countries. Mexico’s Senate approved Wednesday a bill that will force the central bank to buy dollar bills from banks that can’t place them elsewhere, making it easier for the migrants to exchange the dollar, as they often sell the US dollars at a loss. In fact, a significant chunk of the dollars entering the country comes from drug trafficking, and the adoption of the bill by the House of Representatives will increase the risk of money laundering and terrorist financing, hurt the economy and undermine the international confidence that the Bank of Mexico took years to win. Mexico City can face Washington’s sanctions for money laundering.

Political risks must be the only factor that could prevent the peso from exceptional performance in Forex. Over the past six months, the [USDMXN][1] has been down by 11.5%. The gradual recovery of the Mexican economy, which was 12.1% up in the third quarter, the decline in the unemployment rate from 5.5% in June to 4.7% in October, in addition to the favorable foreign environment allow Bloomberg experts suggest the peso could be one of the most promising Forex currencies in 2021.

Forecasts for emerging markets’ assets

Source : Bloomberg

The world’s leading central banks’ ultra-easy monetary policy increased the negative-yielding global debt market to $18 trillion. Cheap money, amid investors’ confidence in a soon victory over the pandemic, support carry traders and emerging markets’ currencies. The major problem of developing economies is the slow introduction of coronavirus vaccines. However, Mexico authorizes the Pfizer-BioNTech coronavirus vaccine’s emergency use, which should encourage the peso buyers.

About 83% of Mexican exports go to the USA. The experts polled by Wall Street Journal expect the US GDP to go up from 1.9% in the first quarter to 4% in the second and third quarter of 2021, which also encourages the [USDMXN][1] bears. Besides, Joe Biden has become the US president and the US-Mexico trade relations.

Besides the international trade also influences the exchange rates. According to Nordea Markets, the growth of international trade will, first of all, support the currencies of Latin America and the emerging markets.

Currency sensitivity to international trade growth

Source : Nordea Markets

Quarterly [USDMXN][1] trading plan

A weaker dollar supports the international financial conditions’ improvement and creates a favorable environment for globalization and trade development, which will encourage the [USDMXN][1] bears. I believe, provided Mexico’s House of Representatives blocks the bill forcing the central bank to buy the dollars, the pair will continue falling towards 19.4 and 18.6. I recommend one to sell the dollar versus the peso on the [USDMXN][1] drawdowns.

Price chart of USDMXN in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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