MexECON Blog

Peso Review - June 2012

The Mexican peso jumped 7.3% against the U.S. dollar in June, closing the month at a spot-market value of $0.0748 (13.37 per dollar).  The rebound in June erased much of the currency's sharp 9.2% decline in May, and it left the peso up modestly for the year to date.  The peso rose rapidly in the first week or so of June, but it then spent a period bouncing around the level of $0.0720 (13.89 per dollar) before finally surging again in the last part of the month.

Comment:  The peso's rebound in June demonstrates that the currency is still captive to events in Europe.  When the European debt crisis seems to be worsening, global investors pull back from risk and the peso gets hammered.  When the crisis seems to be easing, investors focus once again on Mexico's good economic fundamentals and relatively high interest rates, and they resume buying.  In June, not only did the European crisis seem to ease, but it became clear that Mexico's July 1 presidential election would be won handily by the candidate of the former ruling party, and the country would likely be spared any political surprises.

Looking forward, Mexico's strong economic growth, rising exports, low inflation, and relatively high interest rates will continue to support the peso, but the currency will remain at the mercy of events in Europe.  After all, Europe's financial troubles are so large, and Europe is so intimately intertwined with the global economy, that any severe worsening of the Continent's debt crisis is bound to trump Mexico's good economic fundamentals.  With the peso's rebound in June, technical indicators suggest the currency is now overbought.  However, if the European situation continues to look more benign, global investors could keep driving the currency higher.  The next major resistance area for the peso is around $0.0760 (13.16 per dollar).  The next major support area is around $0.0738 (13.55 per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                            U.S. Dollars Per Peso
                                                        Source:  TradingCharts.com
Peso 1206

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