MexECON Blog

Peso Review - April 2012

The Mexican peso fell 1.5% against the U.S. dollar in April, closing the month at a spot-market value of $0.0768 (13.02 per dollar).  It was the first monthly decline in the peso after increases in January, February, and March.  After rising in March to $0.0778 (12.85 per dollar), the currency continued to post modest gains in the first few days of April.  However, it then slid persistently until finding a floor at approximately $0.0755 (13.25 per dollar) in mid-month.  The peso continued to bounce around that level until a surge of optimism in global financial markets drove it to a significant rally at the end of the month.

Comment:  Mexico's good economic growth, healthy fiscal policy, and relatively high interest rates should put significant upward pressure on the peso, so I expected the currency to break higher, rather than lower, from its trading range in February and March.  However, continued moderation in U.S. economic growth and renewed signs of stress in the European sovereign debt markets combined to drive the peso lower in April.  The good news is that the currency found a firm floor before falling too far, and the late-April rally serves as a reminder that it could well turn up again.

Looking forward, the strong fundamentals discussed above point to renewed strength in the peso.  With some countries' manufacturing indexes surprising on the upside this week, there is also a better likelihood that international investors will refocus on risk trades in the near term.  Technical indicators are positive.  With its rally over the last week, the peso has posted a commendable break to the upside, and at the beginning of May, it punched through a resistance level at $0.0770 (12.99 per dollar).  It is now again trading above both its 20-day and 50-day moving averages, and momentum indicators suggest it remains oversold.  If the European debt crisis doesn't worsen too much, the peso looks like it will resume its recent upward trend.  The currency's next resistance levels are at approximately $0.0780 (12.82 per dollar) and $0.0786 (12.72 per dollar).  Its nearest significant support levels are at approximately $0.0762 (13.12 per dollar) and $0.0755 (13.25 per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                      U.S. Dollars Per Peso
                                                Source:  TradingCharts.com
Peso 1204

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