Mexico’s accumulated current account balance deteriorated in the first quarter, shifting to a deficit equivalent to -3.1% of GDP. This compares with a previous reading of 1.55%, marking a reversal from surplus to deficit over the period.
The move implies a wider gap between external receipts and payments than in the prior period, with the current account no longer adding to national income on an accumulated basis. The data point also signals a softer external position relative to GDP at the start of the year.
Currency Risks and External Headwinds
We see the sharp reversal in Mexico’s current account to a -3.1% deficit as a strong signal of upcoming pressure on the Mexican Peso. This shift indicates that more money is leaving the country than entering, which fundamentally weakens the currency. The magnitude of this swing, from a 1.55% surplus, suggests the trend may have momentum.
This data is supported by recent figures showing a slowdown in manufacturing exports, which dropped 5% year-over-year in April 2026. Furthermore, remittances from the U.S., a key support for the peso, have also softened by 2% in the first quarter of 2026 according to preliminary reports. We believe these factors will continue to weigh on the currency in the coming weeks.
Strategy Implications and Historical Context
Given the increased uncertainty, we expect heightened volatility in the USD/MXN exchange rate. Implied volatility on one-month options has already jumped from 11% to 13.5% in the last 24 hours. We anticipate this will climb further, making long volatility strategies like straddles attractive for capturing a large price move in either direction.
For a directional view, we are positioning for a weaker peso by buying out-of-the-money USD/MXN call options. We are specifically looking at contracts with a strike price around 18.50, a level not seen since late 2025. This also serves as an effective hedge for any existing long peso exposure.
Historically, periods of a rapidly widening current account deficit have preceded significant peso depreciation, such as the 7% decline over six months seen in 2018. While the global environment is different, this precedent reinforces our view to use futures contracts to build a longer-term short peso position. We should anticipate the central bank, Banxico, holding interest rates firm to counter some of this outflow.
