MexECON Blog

Peso Review - March 2011

In March, the Mexican peso rose 1.7% against the U.S. dollar, closing the month at a spot-market value of $0.0840 (11.91 per dollar).  That marked the fourth straight monthly gain for the peso, after increases of 0.2% in February, 2.0% in January, and 0.4% in December.  Strong upward pressure on the peso was evident throughout March, with the currency rising sharply in the first two weeks of the month.  It then fell precipitously for several days in the face of news about the big earthquake in Japan and civil strife in Libya.  However, the peso then regained its upward momentum and closed the month at its strongest level since late 2008.

Comment:  There is still significant upward pressure on the "super peso," as the currency is now often described in the Mexican press.  Mexican export growth has recently reaccelerated, and domestic demand is starting to pick up as well.  Moreover, Mexican interest rates remain relatively high.  The government is also keeping its fiscal position in order, in contrast to the gaping deficits and debt problems in much of the developed world.  Finally, many central banks in the developed world continue maintain very loose monetary policies.  Because some large countries in Asia and Latin America are clamping down in capital inflows, Mexico is getting more than its fair share of the resulting liquidity.

Looking forward, the positive fundamentals described above are likely to remain in place, which alone would likely argue for continued upward pressure on the peso.  In addition, technical considerations are supportive.  The currency is on a clear upward trend, consistently posting higher highs and higher lows, and it is now trading well above both its 20-day and its 50-day moving averages.  Moreover, as April began, the peso has decisively surged past its main resistance level at $0.0840 (11.91 per dollar).  Finally, momentum indicators suggest the currency could well rise further before becoming overbought.  Unless a major domestic or international shock appears, the peso looks likely to remain on an upward trend.

Patrick Fearon, CFA
Vice President, Fund Management

                                           U.S. Dollars Per Peso
Peso 1103

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