MexECON Blog

Peso Review - June 2011

In June, the Mexican peso fell 1.3% against the U.S. dollar, closing the month at a spot-market value of $0.0853 (11.72 per dollar).  That marked the second straight monthly decline in the currency, after a fall of 0.6% in May.  In fact, the peso dropped sharply in the first half of the month, reaching an intraday low of $0.0832 (12.02 per dollar) on June 16.  It then rallied erratically through the end of the month.

Comment:  Last month, this blog predicted that the peso's strong rise in recent months would give way to a period of flattish trade, but the currency weakened much more than expected in the face of a sharp and unanticipated bout of risk aversion in world financial markets.  Incoming data from a range of countries showed the world economic recovery has hit a potentially long-lasting soft spot, while renewed concerns about a debt default by Greece spoiled many investors' interest in the emerging markets.  Even statistics out of Mexico showed weakening export growth and falling industrial production.  Mexico still sports some positive economic fundamentals, but the most recent reports have made investors wary.

Looking forward, it is likely that the recent risk aversion has gone too far, and the world economic soft spot may already be priced into the market for risk assets.  If sentiment stabilizes as expected, the peso could even rally.  Indeed, technical analysis suggests the peso has already started a sustainable uptrend.  Momentum indicators show the currency had become quite oversold in mid-June, and after testing its 20-day moving average at the end of the month, the currency has posted strong gains in the last few days.  The peso could well rally further, though soft economic readings are likely to limit the near-term gains.

Patrick Fearon, CFA
Vice President, Fund Management

                                                        U.S. Dollars Per Peso
                                                  Source:  Trading Charts.com
Peso 1106

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