Why Is MXN So Strong?: LatAm Macro Strategy | Latin America

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Why Is MXN So Strong?: LatAm Macro Strategy | Latin America

Idea

July 7, 2026 01:00 PM GMT

Morgan Stanley & Co. LLCMLatAm Macro Strategy | Latin America Ioana Zamfir

Strategist

Why Is MXN So Strong? Ioana.Zamfir@morganstanley.comSofia Palacios +1 212 761-4012

Sofia.Palacios@morganstanley.com +1 212 761-0428

MXN is the only major EM currency whose policy rate spread to DM is sitting at

historical lows, yet it continues to trade higher. We highlight three factors

underpinning the peso's resilience and assess how much additional Banxico/Fed rate

spread compression it can absorb.

• US equities remain MXN's biggest tailwind - and its biggest risk. The peso

remains the EM currency most leveraged to the S&P, particularly Industrials,

this year's outperforming sector.

• Despite the Banxico/Fed policy rate spread sitting near historical lows, MXN's

relatively quiet domestic backdrop keeps volatility-adjusted carry above its

long-run average (and above many EM peers), limiting downside even if the

peso no longer screens as a compelling carry long.

• Remittances continue to cushion weaker fundamentals and keep external

accounts broadly balanced. Strong inflows have offset weaker investment,

but this support is unlikely to strengthen further

We remain neutral on MXN and expect it to trade between 17.20 and 17.75 in the

near term, although a turn in US equities or more aggressive Fed tightening would

likely shift the balance toward peso depreciation.

See the note for our full analysis.

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