MexECON Blog

Peso Review - May 2010

In May, the Mexican peso fell 5.2% against the U.S. dollar, closing the month at a spot-market value of $0.0770 (12.99 per dollar).  At the end of April, the peso was trading at $0.0812 (12.32 per dollar).  The peso's decline in May came as investors once again became more risk averse in response to the possibility of debt defaults in the lesser-developed countries of Europe.  With the decline, the peso has now fallen 6.4% from its most recent peak in late April.  In addition to falling last month, the currency also became much more volatile.  On May 24, it fell all the way to an intraday low of $0.0747 (13.39 per dollar).

Comment:  Until the recent past, Mexico's improving economic fundamentals had lent considerable support to the peso.  Boosted by inventory rebuilding and increased corporate and consumer demand in the United States, the Mexican export sector is in a strong rebound.  In turn, that has boosted Mexican industrial activity and hiring, though a credit crunch is keeping consumer spending muted and corporate investment is still frozen.  Finally, Mexico's low public deficit and well-managed debt levels had provided a positive contrast with the situation in Europe.  Nevertheless, renewed fears of European contagion in the global financial markets have outweighed those positives.  Technical indicators suggest the peso could still remain under pressure.  The currency is now trading below both its 50-day and 20-day moving averages, and while it has found support at about $0.0760 (13.16 per dollar), it has not yet shown signs of a sustained rebound.  Momentum indicators suggest that the peso could be preparing for an upward move, but any such move would require breaking through resistance at approximately $0.0780 (12.82 per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                             U.S. Dollars Per Peso
Peso 1005

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