The Mexican Peso has experienced a notable respite against the US dollar, a development highlighted by Deutsche Bank macro strategist Tim Baker as potentially lasting around the 1.44 level until further market clarity emerges. This temporary stability occurs amidst significant speculative positioning against the Canadian dollar, where traders hold substantial short positions amounting to approximately $10.3 billion, the largest among the Group of 10 currencies, according to Commodity Futures Trading Commission data.
Recent pronouncements from Mexico’s President-elect Sheinbaum, indicating agreements with the US regarding trade and security, have contributed to this market sentiment. These developments are interpreted by some analysts as suggesting a preference for tariffs as a negotiating tool rather than a definitive trade barrier, according to Nick Rees, head of macro research at Monex Europe Ltd. in London. While a deal with Mexico seems plausible, the situation appears more complex for Canada.
Investor reactions have been positive, with the iShares MSCI Mexico ETF witnessing a 2.5% surge to $50.2 per share on Monday in New York, recovering from earlier losses. Mexican dollar bonds have outperformed their counterparts, and the nation’s five-year credit-default swap rate has slightly decreased. It’s worth noting that the Mexican stock market was closed for a holiday during this period.
Panama also saw its bonds rally after pledging to ensure free passage for US warships through the Panama Canal and announcing its withdrawal from China’s Belt and Road Initiative. These concessions followed criticism from US Secretary of State Marco Rubio.
In contrast, the South African Rand experienced volatility, briefly reducing losses as risk appetite improved. However, the Rand remained under pressure against the dollar, particularly after pledges from the US to halt future funding to South Africa due to a new land-expropriation law. The offshore Chinese Yuan also showed resilience, reversing earlier declines to post gains against the dollar, despite ongoing uncertainties regarding US tariffs on Chinese goods.
Alejandro Cuadrado, global head of FX at BBVA in New York, cautioned about the potential risks of market complacency and the underlying economic damage from repeated trade policy volatility, even if temporary truces are reached. The fluctuating nature of US trade policies is expected to continue driving swings in risk assets, as evidenced by a JPMorgan Chase & Co. measure of global foreign-exchange volatility reaching 8.84%, the highest since January 20th.
Despite the current positive momentum for the Mexican Peso, Aroop Chatterjee, a strategist at Wells Fargo in New York, suggests this reprieve may be short-lived. He anticipates that increased tariffs are a matter of ‘when’ rather than ‘if,’ and believes markets are currently underestimating this potential outcome.
This analysis incorporates information with assistance from Nicolle Yapur, Kerim Karakaya, Leda Alvim, Anya Andrianova and George Lei and includes updates with prices, comments, and context on the Canada tariff pause.
