With net peso longs down about 30% since September, attention is focused on the central bank’s next move ahead of developments in US interest rates and the September CPI.
The US CFTC’s IMM positioning showed net peso longs of 52,400 contracts as of 29 September, down about 30% from the previous week, raising the possibility that liquidation selling by overseas speculators contributed to the peso’s decline. The backdrop is the view that the Fed’s rate-hike decision has reduced the peso’s advantage as a high-yielding currency.
At its 24 September meeting, Mexico’s central bank held its policy rate at 6.50%, while removing from its statement the language indicating that it would maintain the current rate level. This could heighten market caution over an early shift toward rate hikes, although the central bank has explained that it does not need to move mechanically in line with the Fed.
The focus ahead is the September consumer price index (CPI), due to be released on the 8th this week. The extent of the peso’s liquidation selling could vary depending on the September CPI data. The market is closely watching the CPI as an indicator of the central bank’s next move.