USD/MXN is trading at a seven month low - 10.6815, following rosy forecasts from Banxico regarding inflation prospects for 06 and 07. For 06, Banxico is forecasting headline CPI below 4%, and "core" between 3.0-3.5%.
For 07, they are forecasting headline CPI at 3.5%, and core at 3%. Inflation recently has been pumped up by high tomato prices, due to crop shortages, and the central bank commented that although they feel it is a temporary phenomenon, it will add a volatile component to the index.
Fixed income traders have been loading up on MXN denominated bonds over recent weeks, and the rosy inflation forecast is generating new demand. Soft oil prices are dragging down the Bolsa, which is off 0.4% at 23,265, however spot FX traders are ignoring this as momentum continues to force USD/MXN lower. One note of caution, the lower Bollinger band is at 10.6700.
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