Concerns about the reform of the judiciary continued to foster greater local risk aversionwhich weakened the weight at levels not seen since the end of 2022 and some analysts see it likely that the exchange rate exceed the level of 20 units.
He nervousness in it foreign exchange market has been exacerbated because on Monday afternoon the news was released approval of the opinion of happiness reform in general and now it is expected that the plenary session of the Chamber of Deputies proceed to discuss and approve when you start the new legislature.
Additionally, the investors They are still assimilating the announcement about the elimination of various autonomous bodies like the INAI, Cofece, Coneval, and the CREamong others.
This led yesterday to the Mexican currency at 19.7131 pesos per dollar, according to the closing data published by the Bank of Mexico (Banxico)which represented a depreciation of 1.81 percent, compared to its previous close.
So far this year, the Mexican peso It is the one that shows the second worst performance among the emerging market currencieswith a depreciation of 16.2 percent, the most significant for the same period in 26 years, since 1998, excluding the loss reported in 2020 by the crisis generated for the pandemic.
Internal risks
Gabriela Siller, director of economic and financial analysis at Banco Base, He noted that upward pressures for the exchange rate are due to the internal risks and the juncture makes it very likely that it will again exceed the psychological level of 20 pesos per dollar.
He considered that the risks arise from the potential approval of the reform to the Judicial Branchin which case the Trade and diplomatic relations with the United States and Canada would be affected, which would immediately limit the Mexico’s economic growth.
He estimated that the impact of judicial reform would subtract at least 1.9 percent of the Mexico’s GDPwhich would imply a moderate recession and would also put at risk the credit rating.
Amin Vera, Investment Director at INVALA, He noted that, “the disappearance of autonomous bodies is enough to see a depreciation like the one we are seeing. We estimated that with its elimination and the presentation of judicial reformhe weight would depreciate around 19.80 units, what we did not count on was that United States and Canada would so openly and quickly show their opposition.”
He pointed out that this is one of the few cases in which all macro indicators point to a appreciation of the pesobut instead there is a setback. “The fact that internal factors are winning out over external elements indicates that there is a great nervousness on the local side,” he said.
Volatility will persist
Luis Gonzalí, Vice President and Investment Director at Franklin Templeton Mexico, He explained that while there are concerns about local issues, they cannot be ignored. global issueslike the US electionsand the effects of carry trade that continue to develop.
“I think that for the rest of the year we will be seeing a depreciated exchange ratebecause in September the nervousness derived from local issues, in addition to the fact that in that month it is also expected that The Fed and Banxico cut your interest rateswhich will surely involve volatility”.
Adrian Muñiz, deputy director of economic analysis at Vector Casa de Bolsa, He pointed out that this market is speculativeand it is seen that it will enter a stage where the exchange rate will have more upside risks than downside risks.
“Periods of coming volatility due to external factors, particularly the elections in the United States, but a little before that we will have an idiosyncratic issue related to the installation of the new Congress with Morena’s supermajority and all the uncertainty surrounding the discussion of the constitutional reforms“, accurate.
Angel Huerta, economic analyst at Ve por Más, estimated that volatility will be persistent in the exchange rate of the Mexican currency until there is greater clarity about the direction that each of the prevailing risks will take.
However, he commented that there are also elements that could alleviate some of the pressureslike the cut in the interest rate by part of The Fedand the solid macroeconomic fundamentals of the country.
