US protexchctionist stance largest threat to MXN - Rabobank

Analysts at Rabobank explained that they maintain the view that the biggest risk to MXN performance next year will be any move to a more protexchctionist stance from the US. 

Key Quotes:

"With over 25% of Mexican GDP a result of exports to the US and with income from remittances key in supporting domestic demand, if Trump follows through with his pre-election pledges of renegotiating/destroying NAFTA, implementing tariffs on trade or stopping/deporting immigrants then activity in Mexico will suffer greatly. "

"As we have noted before, Banxico is somewhat limited in terms of what it can do to support the currency given that MXN is still the LatAm proxy and Trump Trade of choice for markets. 

This is particularly difficult for Banxico as raising rates to combat a US protectionist induced sell-off in MXN will weigh on activity itself and so the ‘medicine’ may make the ‘symptoms’ worse. Still, we do not expect the Bank to intervene directly in spot FX as this would be unlikely to have a meaningful impact given the depth of liquidity in the MXN market."