Banxico Governor assures market stability amid Mexican Peso volatility

• Banxico Governor Rodriguez Ceja attributes Peso volatility to external factors, not solely domestic political issues.
• USD/MXN surged from 16.91 to 18.99 after the June 2 election, with 10-year Mbono yield rising to 10.74%.
• Banxico may deploy a $30 billion hedging program to stabilize markets; USD/MXN currently retreats below 18.80, down 0.87%.

Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja commented on Wednesday that the central bank has the tools to intervene in the markets and restore market order after the Mexican Peso depreciated more than 9% following the June 2 election.

Banxico is ready to intervene following Peso's 9% depreciation post-election

Rodriguez Ceja said that volatility is mostly attributed to external factors and refrained from expressing that the USD/MXN exchange rate jumped due to Andres Manuel Lopez Obrador’s (AMLO) intentions to push a bill to make a judiciary reform and to reforms to disappear autonomous bodies, which bring certainty to investors.

She said volatility is due to “idiosyncratic factors” and global issues such as the Middle East war and the outlook for US interest rates.

After the elections, the USD/MXN rallied from 16.91 and hit a 14-month high of 18.99 on June 12. Additionally, the yield on the 10-year Mexican Bono (Mbono) jumped from 9.76% to 10.74% amid analysts’ comments on the lack of bids for Mexican debt.

Banxico Governor Rodriguez commented they could turn to a $30 billion hedging program aimed at stabilizing the markets and protecting banks from MXN losses, according to Bloomberg.

USD/MXN Reaction

On Thursday, the USD/MXN so far retreated below 18.80, with the emerging market appreciating some 0.87%. Still, upside risks remain unless the pair drops below the April 19 high of 18.15 after the Peso crashed to a new multi-month low.