We sell CAD/MXN on relative competitiveness. Mexico is cheap, Canada isn't. We continue to expect Canada to be the laggard in any global upswing because of the currency's strength. Recent weakness in the oil price will also dampen trade flows. BoC may raise rates more than 3 times but if it does, it will probably be because the Fed has delivered more than the two hikes the market is currently discounting, rather than because Canada needs the most policy tightening in G10. CAD is likely to underperform as rate-hike pricing adjusts.
MXN FX is cheap. Leftist presidential candidate AMLO has a lead of at least 9% in the polls, but with fully six months until the election it is too soon to price in all the 'bad news'. As NAFTA renegotiations continue there remains a risk that the trade treaty will be scrapped. But that is not our base case, and we reckon the current spot level compensates for that risk.
We sell CAD/MXN at 15.50 with a stop loss at 15.80 and a take profit target of 14.85.
CAD/MXN hits our profit taking level on 12 February 2018 for a total profit of 4.2%.