Mexican Peso’s Best Forecaster Predicts Pain Coming Before Gains

  • PrivateBank sees peso falling more than 4% by end of September
  • Todd Liska says carry trade will help propel peso recovery

Silver coins are melted in order to be re-used again at the Mexican Mint, or Casa de Moneda, in San Luis Potosi, Mexico.

Photographer: Susana Gonzalez/Bloomberg

Todd Liska’s optimism made him the best peso forecaster in the second quarter. But now he expects a bit of pain before Mexico’s currency regains strength next year.

Liska, a strategist in Chicago at The PrivateBank, was an outlier in January when he predicted a recovery for the peso after threats to rip up trade agreements from Donald Trump’s administration sent it to a record low. As Wall Street banks from Citigroup Inc. to Nomura Holdings Inc. cut their estimates, Liska maintained that they were excessively bearish and predicted that Mexico’s economic fundamentals would support gains.

The peso rallied to become the world’s best performer this year, making Liska the top forecaster for the quarter ending June 30 among analysts tracked by Bloomberg. Now he predicts the peso will weaken over the next few months as talks over the North American Free Trade Agreement once again raise concerns about the outlook for Mexico’s exports, then rally to post a slight increase from current levels by the middle of 2018.

“There’s still some near-term cautiousness with respect to Nafta negotiations coming up and some of the headline risk that could be around there,” Liska, whose 20 years working in the currency market included a stint at ABN Amro Bank, said in an interview. “The peso still looks undervalued relative to historical levels so we think that’s still a positive driver.”

After the Mexican central bank raised its overnight rate by 4 percentage points in less than two years, yield differentials between peso- and dollar-denominated assets will remain attractive and support the peso, he said. The currency rose 0.3 percent to 17.4984 per dollar at 4:21 p.m. Thursday in New York.

— With assistance by Carlos Torres

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