MexECON Blog

Peso Review - August 2013

In August, the Mexican peso fell 4.7% against the U.S. dollar, closing the month at a spot-market value of $0.0747 (13.39 pesos per dollar).  That was more than sufficient to erase the rise of 2.0% in July, and it left the currency at its lowest level since mid-June.  The peso posted modest gains in the first third of August, but it then slid sharply and consistently throughout the final two-thirds of the month.

Comment:  The peso's slide during August came as investors continue to reposition their holdings for a world in which U.S. economic performance seems to be improving and policymakers are laying the groundwork for an eventual rise in U.S. interest rates.  Investors have begun to stampede out of the emerging markets.  Mexico's decent economic fundamentals should still be attractive to many investors, but growth has slowed, and the peso has come under strong downward pressure.

Looking forward, the peso will continue to be vulnerable to sharp swings up or down, depending on the signals from U.S. monetary policymakers.  If statements continue to suggest higher interest rates north of the border, the peso could weaken further.  Continued slowing in the Mexican economy could exacerbate the trend.  Recent signs of stronger growth in the U.S. economy should eventually show up in improved Mexican data, but not yet.  From a technical standpoint, the peso's continued downward trend and falling moving averages show it is probably too early to call for stabilization.  Nevertheless, momentum indicators suggest the currency is already oversold, so a bottom could be coming relatively soon.  The peso's next notable support level is at approximately $0.0730 (13.70 pesos per dollar).  Its next notable resistance level is at $0.0758 (13.19 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                 U.S. Dollars Per Peso
                                             Source:  TradingCharts.com
Peso 1308

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