MXN: Speculators had amassed a near record gross short peso position - BBH

Research Team at BBH, suggests that the first US Presidential debate may not sway many voters but has lifted the Mexican peso. 

Key Quotes

“The peso, which has fallen by about 1.3% over the past two sessions, has stormed higher by 1.5% today in response to the seemingly biggest winner of the debate.  Snap polls immediately following the debate gave the edge to Clinton. 

Speculators had amassed a near record gross short peso position in the futures market.  It had more than doubled over the past three weeks to 109.9k futures contracts as the polls indicated the contest had tightened markedly since the end of August.  The bears had added 24k contracts alone in the five-day reporting period ending September 20. 

We have argued that the bearish case for Mexico for real investors extended well beyond US presidential politics, and note that the peso has been trending lower against the dollar since early Q2.  The market had gotten frothy as the speculative positions showed.  The dollar approached a key psychological MXN20.00 level.  The central bank meets this week, and the market leans toward a 50 bp rate hike.  The dollar fell to a low a little below MXN19.44 in thin early European dealings before rebounding.

We think a hawkish surprise from Banxico is likely.  Indeed, the fact that USD/MXN is rallying may argue in favor of a 50 bp hike coupled with discretionary FX intervention.  The FX market conditions have lined up similarly to February, when policymakers last intervened aggressively.”