MXN: Peso remains fragile due to lower oil prices and risks of a rate hike in the US - BBH

According to analysts from Brown Brother Harriman, the Mexican peso remains weak due to lower oil prices and with the potential of a Federal Reserve rate hike. They downplay the “Trump effect”. 

Key Quotes: 

“The Mexican economy remains weak as Q2 GDP contracted 0.2% q/q, the first negative growth for 3 years. Weak manufacturing has depressed growth, even as the service sector has also softened. Tightened fiscal and monetary policies continue to weigh on the economy while overseas worker remittances remain firm thanks to a steady US economy.”

“Inflation pressures are picking up due to low base effects and weak peso. Headline CPI accelerated to 2.73% y/y in August and core CPI has been at around 3% y/y since June. The Banco de Mexico sees inflation staying at around 3% until the end of 2016.”

“The weak peso is likely to boost price pressures in Q4. The peso remains fragile due to lower oil prices and the risk of the US hiking rates. The peso still has strong correlation with oil prices and has been considered a proxy for EM. We downplay notions that peso weakness is stemming from rising odds that Donald Trump will win the election.”