MexECON Blog

Peso Review - November 2011

In November, the Mexican peso fell 2.0% against the U.S. dollar, closing the month at a spot-market value of $0.0733 (13.64 per dollar).  That followed a rise of 4.0% in October and an 11.3% plunge in September.  The currency was generally stable through mid-November, but it then fell sharply, reaching an intraday low of $0.0699 (14.31 per dollar) on November 25, before partially recovering at the end of the month.

Comment:  Although the peso weakened in November, the pullback was much more muted than the big declines during the global economic panic of late summer.  Incoming data from Europe and Asia continues to be disappointing, fueling a flight out of emerging market assets.  In addition, global investors are worried about the possibility of slowing economic growth in the United States, which would likely pull down Mexico activity.  Nevertheless, recent U.S. indicators have been somewhat encouraging, and that has helped lend the peso some support.

Going forward, Mexico's continuing good economic growth, healthy fiscal policy, and high interest rates have the potential to provide further support to the peso.  In addition, Mexico's foreign currency commission (composed of officials from the central bank and finance ministry) announced at the end of November that it would temporarily suspend selling dollar put options and direct the central bank to auction up to $400 million of its reserves on any day when the peso falls by more than 2.0% against the dollar.  Those measures are designed as insurance against the possibility of a financial crisis emanating out of Europe.  The economic risks from Europe remain acute, but if the European situation does not deteriorate too much, the fundamentals for the peso are supportive.  Technical indicators are also modestly positive for the peso.  With its rebound in late November, the currency has now surpassed both its 20-day and 50-day moving averages, and it looks like it is holding firmly above those levels.  Moreover, momentum indicators suggest the peso could rise further before it was overbought.  The currency's next resistance level is at approximately $0.0745 (13.42 per dollar).  Its nearest support level is at approximately $0.0727 (13.76 per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                           U.S. Dollars Per Peso
                                                   Source:  Trading Charts.com
Peso 1111

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