The Mexican peso advanced 1.3% against the U.S. dollar in
August, ending the month at a spot-market value of $0.0758 (13.19
pesos per dollar). The currency was stable through most of
the month, trading in a band between approximately $0.0755 (13.25
pesos per dollar) and $0.0765 (13.07 pesos per dollar).
However, it staged a steep drop near the end of the month before
partially recovering on the last day.
Comment: As with so many assets
these days, the peso's performance continues to be driven by global
investor sentiment regarding the European debt crisis.
Prospects for U.S. economic growth now seem a bit better after the
softening in the spring and early summer, so they are less
important. The peso's relative stability in August therefore
came primarily from the lull in the European crisis.
Looking forward, the peso will continue to trade based on global
investor sentiment regarding the possibility of contagion out of
Europe. If it starts to look like the United States is
faltering again, the Mexican economy could suffer anew, and that
would also likely impact the peso. Therefore, in the current
global environment, it is probably too much to expect any
significant move to the upside. Nevertheless, the currency is
deriving some strength from Mexico's positive economic
fundamentals, which include strong growth, relatively high interest
rates, low inflation, and healthy fiscal policy, so a modest move
higher or at least some support in a global downdraft would not be
out of the question. The peso's technical indicators are
similarly mixed. After breaking out to the downside of its
recent trading range, falling below its 50-day moving average, the
currency posted a good rebound and is now back at the lower end of
its previous range. Momentum indicators are neutral.
The coming days therefore should give us a better indication as to
whether any new trend is developing or whether the peso will remain
roughly flat for a while. The next major support level for
the peso is at approximately $0.0750 (13.33 pesos per
dollar). The next major resistance level is at approximately
$0.0765 (13.07 pesos per dollar).
Patrick Fearon, CFA
Vice President, Fund Management
U.S. Dollars Per Peso