MexECON Blog

Peso Review - August 2012

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
Peso 1208

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