In November, the Mexican peso fell 0.7% against the U.S. dollar,
closing the month at a spot-market value of $0.0763 (13.11 pesos
per dollar). That marked the first decline in the currency
after increases of 0.5% in October and 2.3% in September.
Even though the pullback in November was fairly modest, the
currency actually was rather volatile up to mid-month, posting
first a sharp slide and then a big rebound before trending downward
throughout the last two weeks of the period.
Comment: As I forecast last
month, the peso suffered in November in response to investor
concerns about the next set of fiscal deadlines in the United
States and the potential for the Federal Reserve to begin
tightening monetary policy. As incoming data pointed to a
potential reacceleration in the U.S. economy, the fears of monetary
tightening became even more pronounced. They were even enough
to offset positive news that the Mexican economy returned to growth
in the third quarter after a decline in the second quarter.
Looking forward, I expect the peso to continue trading largely
on global sentiment about U.S. fiscal and monetary policy.
Actual monetary tightening may still be farther off in the future
than many observers expect, but that may not stop investors from
adjusting their portfolios in anticipation. Buying sentiment
for the peso is likely to be weaker than it has been in the recent
past. Technical indicators are, on balance, pointing modestly
downward as well, with the currency now trading below its 20-day
moving average, its 20-day moving average below its 50-day moving
average, and momentum indicators essentially neutral.
Nevertheless, the peso is not far off from a potential near-term
bottom. Its next notable support levels are at approximately
$0.0753 (13.28 pesos per dollar) and $0.0748 (13.37 pesos per
dollar). Its next notable resistance level is at
approximately $0.0765 (13.07 pesos per dollar).
Patrick Fearon, CFA
Vice President, Fund Management
U.S. Dollars Per Peso