MexECON Blog

Peso Review - June 2010

In June, the Mexican peso fell 0.3% against the U.S. dollar, closing the month at a spot-market value of $0.0768 (13.02 per dollar).  At the end of May, the peso had been trading at $0.0770 (12.99 per dollar).  Even though the value of the peso was virtually unchanged at the end of June, the currency was quite volatile in mid-month, just as it had been in May.  The peso staged a significant rebound until June 20, when it reached an intraday high of $0.0805 (12.42 per dollar).  Then, however, a spate of negative financial and economic news both within Mexico and abroad served to take the wind out of the currency's sails.  At the end of June, the peso was down 6.7% from its most recent intraday peak of $0.0824 (12.14 per dollar) on April 25.

Comment:  Until late April, 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 was in a strong rebound.  In turn, that had boosted Mexican industrial activity and hiring, though a credit crunch was keeping consumer spending muted.  Finally, Mexico's low public deficit and well-managed debt levels had provided a positive contrast with the situation in Europe.  More recent economic data from the United States and even from Mexico itself have suggested the economic rebound is at least temporarily weakening.  For example, Mexico's unemployment rate has started to climb again, and at 5.7% in May, it is almost back up to its cycle peak.  Not only are the peso's fundamentals looking less positive, but the currency's technical indicators are pointing downward.  The peso is again trading below both its 20-day and 50-day moving averages.  Momentum indicators turned negative in late June, suggesting that the currency is likely to fall at least a bit further.  Chart analysis suggests the peso's next support level would be at approximately $0.0760 (13.16 per dollar)

Patrick Fearon, CFA
Vice President, Fund Management

                                                              U.S. Dollars per Peso
                                                         Source:  TradingCharts.com
Peso 1006

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