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