MexECON Blog

Peso Review - June 2013

In June, the Mexican peso fell 1.3% against the U.S. dollar, closing the month at a spot-market value of $0.0769 (13.00 pesos per dollar).  That marked the second straight monthly decline in the currency, after a plunge of 5.5% in May.  The peso seemed to find a floor during the first half of June, but it plunged in mid-month as market participants began to worry that the U.S. Federal Reserve was preparing to tighten monetary policy and officials failed to offer any appreciable assurances to the contrary.  Economists and policymakers finally began to offer those assurances in the latter half of the month, stressing that monetary policy in the developed markets would remain loose for the foreseeable future.  That helped lift the peso off its lows and almost brought it back to the trading range established at the beginning of the month.

Comment:  In last month's review, I noted that there was a high probability the peso would soon find a floor, in part because it was oversold and in part because I expected officials to signal their intention to keep monetary policy loose.  The peso's behavior in early June was entirely consistent with that idea.  The plunge in mid-June came because the policymakers' assurances came later than expected.  The fact that the peso rebounded almost back to its early-June levels after the policymakers belatedly tried to calm the markets shows that the currency really is ready to stabilize.

Looking forward, everything now depends on the market's on-going reassessment of monetary policy prospects in the developed world.  If the Federal Reserve, the Bank of Japan, and the European Central Bank all look set to keep a lid on interest rates for the foreseeable future, capital is likely to start flowing back into riskier assets.  Because of Mexico's good economic fundamentals - such as its decent growth, disciplined fiscal policy, low debt levels, and relatively high interest rates - much of that hot capital is likely to keep finding a home in Mexico, at least allowing the peso to stabilize and perhaps boosting it further.  Finally, technical indicators are encouraging.  The peso remains oversold.  It has climbed back above its 20-day moving average, and it looks like it will soon climb back above its 50-day moving average.  The peso's next notable resistance levels are at approximately $0.0779 (12.84 pesos per dollar) and $0.0790 (12.66 pesos per dollar).  Its next major support levels are at approximately $0.0760 (13.16 pesos per dollar) and $0.0750 (13.33 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                             U.S. Dollars Per Peso
Peso 1306

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