Judicial reform takes the next hurdle – Commerzbank

Mexico’s planned judicial reform continues to cause considerable volatility for the peso. Earlier this week, the reform completed its first step through the parliamentary process, with a parliamentary committee approving the reform. At the same time, the US and Canadian ambassadors expressed concern about the reform. The answer was quite harsh: relations with the ambassadors were “suspended” for the time being. None of these developments have done the peso much good, notes Michael Pfister, FX analyst at Commerzbank.

Peso to benefit from reassuring statements in the short term

“Yesterday they tried to rectify the situation. Incumbent Mexican President Andrés Manuel López Obrador (AMLO) insisted that the suspension only concerned relations with the respective embassies and did not affect relations with the respective governments. At the same time, there were rumors that the president-elect, Claudia Sheinbaum, would have asked that the judicial reform not be pushed through the parliamentary process in this way.”

“This would be a positive development as it would indicate that policymakers are at least aware of the concerns of many market participants. The peso could benefit somewhat as a result. We do not want to repeat here why we think the planned reform is problematic for the Peso. But we’d still be wary of taking such rumors at face value. Last week, Sheinbaum tried to ease market concerns about the reform.”

“And even before that, her statements tended to indicate that she too would like to see the reform through the parliamentary process as soon as possible. With this in mind, we could very well see the peso benefit from reassuring statements in the short term, but we continue to see little upside potential for Mexico’s currency in the medium term.”