MexECON Blog

Peso Review - September 2014

In September, the Mexican peso fell 2.5% against the U.S. dollar, closing the month at a spot-market value of $0.0745 (13.42 pesos per dollar).  That was more than enough to reverse the currency's 1.1% gain in August.  Prior to that, the currency had fallen 1.8% in July and 0.9% in June.  The peso is now trading at its lowest level since early February.  As shown in the chart, the peso held its own early in September, but then suffered a sharp drop in the second week of the month.  It suffered further sharp declines in the last week.

Comment:  With Mexican exports and overall economic growth accelerating again, the peso's fundamentals look relatively good.  However, it is now clear that global investors have become concerned about a range of developments, both domestic and foreign.  On the domestic side, Mexico's interest-rate cut in early summer did no favors for the peso, and the government's newly expansive fiscal policy could be stoking fears of future debt problems.  On the foreign side of things, concerns are much more acute.  Investors are again focusing on the possibility that the U.S. Federal Reserve will soon start raising interest rates, draining capital out of the so-called emerging markets.  Continuing violence in Ukraine, the rise of the Islamic State, and now political unrest in Hong Kong are also unsettling markets.  Against this backdrop, it should be little surprise that the peso has been under pressure.

Looking forward, I expect that the fundamental problems discussed above will continue to weigh on the peso for a while yet.  Technical indicators are perhaps a bit more positive, as momentum indicators suggest the currency is already oversold, and it is already near the major lows touched in February 2014, September 2013, and June 2013.  Those lows should form an important support area.  Nevertheless, the peso is still showing signs of weakness, and if it breaks decisively below current levels, its next support area would not be until approximately $0.0730 (13.70 pesos per dollar).  On the upside, the peso's next significant resistance area is at approximately $0.0751 (13.32 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                        U.S. Dollars Per Peso
Peso 1409

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