The US has opted against a 16-year extension of the USMCA, choosing instead to conduct annual reviews through 2036. That approach leaves near-term trade flows broadly unchanged, but extends uncertainty over the longer-term rules governing regional trade, manufacturing and supply-chain integration, with Mexico exposed to the rolling timetable.
The shift in review structure risks keeping large-scale capital commitments on hold over coming quarters, as companies favour incremental investment over major expansion plans. Policy uncertainty can also weigh on Mexican assets, while higher risk premia may restrain FDI inflows and push back Mexico’s expected growth recovery.
Implications Of Annual USMCA Reviews For Mexico
We see the U.S. decision for annual USMCA reviews as a source of prolonged uncertainty for Mexico. While near-term trade flows will likely remain stable, the muted reaction in the peso suggests this outcome was largely expected. This lack of a long-term trade framework is the key issue for investors.
The real impact will be on investment decisions over the coming quarters. We have already seen Foreign Direct Investment slip by 5% year-over-year in the first quarter of 2026, suggesting firms are hesitant to commit large amounts of capital. Companies are likely to favor smaller, incremental projects instead of major expansions until the trade outlook clears.
Risk Premiums, Peso Volatility, And Investment Strategies
For derivative traders, this gradual build-up of risk suggests a strategy focused on rising volatility. Implied volatility on the peso has already climbed to 14.5%, and we can look back to the original 2017-2018 negotiations when similar uncertainty pushed it above 15% consistently. Buying longer-dated options could be an effective way to position for future price swings.
We believe this policy overhang will create a persistent risk premium on Mexican assets, likely weighing on the peso. A weaker growth outlook, combined with Banxico holding rates at 11.00% specifically due to these external risks, points to a weaker currency long-term. This suggests a bearish bias for the MXN is warranted in the coming months.
Therefore, we are considering establishing long positions in USD/MXN through futures or call options. The strategy is not about a sharp, immediate drop in the peso but about positioning for a gradual depreciation as investor confidence slowly erodes. This approach allows us to capitalize on the developing trend over the next several weeks.
