Banxico's rate hike likely in june 2016

Mexico's August industrial production will be released today. A reduction of 0.3% m/m is foreseen due to the contraction in US manufacturing, putting us below consensus (+0.2% m/m), says Barclays. This reading would confirm our expectation of a deceleration in economic activity in Q3.

MXN is expected to remain on the sidelines as the recent risk rally is likely to continue this week, with downside risks for the peso if U.S. data come out better than expected. 

"The rates market has shown resilience to recent volatility episodes, and their outlook is more constructive. Inflation remains under control, FX pass-through has declined in recent years and remained subdued recently, and a moderate deceleration in economic activity is keeping inflationary pressures in check. These facts, combined with expectations of a Fed hike moving further into the future, will induce Banxico to hold its rates; as such, a hike is expected in June 2016, argues Barclays.