MexECON Blog

Peso Review - September 2013

In September, the Mexican peso rose 2.3% against the U.S. dollar, closing the month at a spot-market value of $0.0764 (13.09 pesos per dollar).  That followed a decline of 4.7% in August.  The currency posted a sharp rebound in the first half of September, buoyed by signs of stability in U.S. monetary policy and a cut in Mexican interest rates that offered some hope for the flagging economy.  However, it gave back most of those gains in the second half of the month, in part because political infighting suggested a destabilizing shutdown of the U.S. government might be at hand.

Comment:  Until recently, the peso had been trading primarily on investors' view of whether the U.S. Federal Reserve was ready to tighten monetary policy.  Any sign that the Fed was preparing to cut its asset purchases was taken as an indication that capital flows into Mexico and the other emerging markets were soon to dry up and that it was time to sell the peso.  After the Fed unexpectedly held its asset purchases steady at mid-month, however, the peso declined.  That suggests that investors are unnerved by the unpredictability in monetary policy, even as political bickering is making it hard to judge the trajectory of U.S. fiscal policy and whether the economic acceleration north of the border could be disrupted.  To make matters worse, the Mexican economy has slowed dramatically this year, and even though there have been some signs of stabilization recently, it is not yet clear that the economy can avoid sliding into recession.

Looking forward, the peso will probably continue to trade unpredictably for a while yet, until investors have a clearer idea of the trajectory of monetary policy on both sides of the border and whether the fiscal squabbling in the United States will produce any lasting economic damage.  Another big driver could be any sign that the Mexican economy is starting to reaccelerate again after its worrying slowdown in recent months.  Unfortunately, technical indicators are not very clear at the moment.  For example, the 50-day moving average continues to decline, and the peso has recently been trading below it, but the 20-day average has been rebounding and is now above the 50-day average.  Momentum indicators are essentially neutral.  The peso's next notable support levels are at approximately $0.0758 (13.19 pesos per dollar) and $0.0746 (13.40 pesos per dollar).  Its next notable resistance levels are at $0.0770 (12.99 pesos per dollar) and $0.0780 (13.19 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                      U.S. Dollars Per Peso
                                                  Source:  TradingCharts.com
Peso 1309

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