Mexico’s Remittance Slowdown Could Stop Peso Rally, BofA Says

Bank of America Corp. (BofA) warns that Mexico's remittances have fallen to a three-year low, a trend that could impede the Mexican peso's significant rally. The peso has been a top-performing emerging market currency, delivering nearly 12% returns this year since the onset of the US trade war.

Analysis

Bank of America Corp. has issued a cautious outlook on the Mexican peso, highlighting that remittances have fallen to a three-year low. This slowdown in a critical source of foreign currency inflow presents a significant headwind that could halt the peso's recent rally. The currency has been a top performer in emerging markets, delivering a nearly 12% return this year, with its strength notably accelerating since the onset of the US trade war on April 2. The decline in remittances introduces a new fundamental risk that may outweigh the factors that have supported the peso's outperformance, potentially leading to a period of consolidation or depreciation.

Key Decisions for Investors

• Investors holding long positions in the Mexican peso should re-evaluate their exposure given the identified risk of a near-term trend reversal.
• It may be prudent to delay initiating new long positions in the peso until remittance data shows signs of stabilization or recovery.
• Closely monitor upcoming remittance figures from Mexico, as they will be a key indicator for gauging the sustainability of the peso's strength.