Banxico’s peso hedges unlikely to have a big impact

The Mexican central bank’s new programme of auctioning currency hedges marks a significant departure from its previous FX intervention policy, but is currently small in scale. As such, we doubt it would prevent a renewed drop in the peso if sentiment took another turn for the worse. Following a month of strong gains for the Mexican peso in the aftermath of Donald Trump’s inauguration as US President, Banxico surprised markets on 21st February by announcing a new programme of currency hedge auctions. The first auction for $1bn of these hedges was held on 6th March and further sales will occur at the central bank’s discretion.