Mexican Peso sensitivity to risk aversion
The Mexican Peso is biased to depreciate according to data from the foreign exchange derivatives market, according to commentary from one member of the Banxico. MXN is also particularly sensitive to depreciating during periods of high risk aversion, the Banxico meeting minutes said.
“The reduction in exchange rate volatility and in the implied skew in foreign exchange options suggest a lower demand for hedging amid a possible depreciation of the Mexican peso, which contrasts with other election years,” said the member, who was not named.
“Lower demand, as well as the positioning observed in short-term foreign exchange derivatives markets, could magnify a depreciation of the Mexican peso in the event of an episode of high-risk aversion, and thus periods of volatility cannot be ruled out,” the member added.
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