MexECON Blog

Peso Review - April 2010

In April, the Mexican peso was virtually unchanged against the U.S. dollar, rising just 0.1% to close the month at a value of $0.0812 (12.32 per dollar).  At the end of March, the peso was trading at $0.0811 (12.33 per dollar).  The lack of meaningful change masks some big movements during the month, and the currency has been particularly volatile in early May.  The peso began April with strong gains, as investors regained their nerve in the face of debt default risks in Europe.  When the news from Europe again turned unsettling, however, the peso hit a ceiling.  Traders tried to push the currency above that resistance point late in the month, but the news out of Europe proved too much, and the peso came under selling pressure.  While the peso held up relatively well until month's end, it plummeted in early May before staging a rebound.

Comment:  As illustrated by the peso's partial recovery in recent days, there is still some underlying strength supporting the currency.  Mexico's low public deficit and well-managed debt levels alone would make the currency relatively attractive.  Moreover, Mexico's economy continues to rebound on the strength of recovering demand from the United States.  The country's trade balance is improving, and increased industrial production is helping to reduce the unemployment rate.  That is likely to set the stage for better domestic demand in the future, though for now, a crippling credit crunch is keeping consumer demand under wraps and corporate investment virtually frozen.  The peso often rises on an improvement in the relative size of the Mexican trade balance versus the U.S. trade balance and on gains in the Mexican stock market.  The fundamentals therefore suggest the peso could soon resume its upward trajectory.  Nevertheless, technical signals are more ambiguous.  Despite the peso's strong rebound from its early-May low, it has not yet broken definitively above its 20-day moving average.  Indeed, it seems to have hit a strong resistance point at its 50-day moving average.  On the other hand, momentum indicators suggest that the peso was heavily oversold in early May, which may have set the currency up for a sustained rebound if the market can shake some of its current risk aversion.

Patrick Fearon, CFA
Vice President, Fund Management

                                                      U.S. Dollars Per Peso
Peso 1004

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