Mexico’s current account swung to a deficit of $15,878m in the first quarter, reversing from a $7,702m surplus in the previous quarter. The move marks a quarter-on-quarter deterioration of $23,580m, shifting the external balance from positive to negative territory.
The data point signals a sharp change in Mexico’s net transactions with the rest of the world over the period. It compares the latest quarterly outcome directly with the prior quarter’s figure, offering a clear view of the reversal in the country’s overall external position.
Sharp Peso Risks And FX Market Response
This sharp swing from a surplus to a significant deficit is a major red flag for the Mexican Peso. We see this as a fundamental shift that will pressure the MXN lower against the U.S. dollar in the coming weeks. The market is now forced to question the stability of the so-called “super peso.”
Implied volatility on one-month USD/MXN options has already surged over 15% to 14.2% since the announcement, so we should anticipate wider trading ranges. This makes buying options, such as straddles, more expensive but potentially necessary to trade the expected swings. The USD/MXN exchange rate has already jumped from around 17.50 to test the 17.85 level.
Carry Trade Unwinds And Broader Currency Implications
We are looking at buying out-of-the-money call options on the USD/MXN pair, targeting strikes above 18.50 for the July 2026 expiration. This strategy offers a defined-risk way to profit from a potential sharp depreciation of the peso. The cost of these options is rising, but the potential payoff from a major trend reversal is substantial.
The peso’s strength has been propped up by the attractive carry trade, with Banxico’s policy rate holding at 10.5% versus the Fed’s 4.75%. A current account deficit of this magnitude could scare foreign investors, causing them to unwind these carry trade positions and sell pesos regardless of the high interest rate. Historically, when the current account has deteriorated this quickly, it has led to periods of sustained peso weakness.
This deficit is especially concerning as it comes despite West Texas Intermediate crude oil prices holding steady near $85 a barrel. The data suggests the weakness is rooted in a sharp increase in imports and income payments, not just commodity price changes. We are therefore reducing exposure to any strategies that rely on a stable or strengthening peso through the second quarter.
