CAD/MXN Outlook: Likely to decrease, as the exchange rate is significantly below its recent average and faces pressure from key developments.
Key drivers:
• Rate gap: The Bank of Canada has recently lowered interest rates, while the Bank of Mexico maintains its rates, favoring the MXN over the CAD.
• Risk/commodities: Oil prices are currently at 90-day highs, which usually benefits the CAD, but the significant volatility suggests uncertainty that may not support a recovery.
• Economic growth forecasts for Mexico indicate a projected GDP growth rate, which is expected to support the MXN despite potential weaknesses in the Canadian economy.
Range: The CAD/MXN is likely to drift within its recent 3-month range, fluctuating between the lower and mid-range levels.
What could change it:
• Upside risk: A surprise announcement from the Bank of Canada signaling a shift in monetary policy could boost the CAD.
• Downside risk: Further tariffs on Canadian exports by the U.S. could worsen trade relations and pressure the CAD lower.
