MexECON Blog

Peso Review - October 2014

In October, the Mexican peso fell 0.5% against the U.S. dollar, closing the month at a spot-market value of $0.0741 (13.50 pesos per dollar).  That followed a big 2.5% drop in September, and it marked the currency's fourth decline in the last five months.  The peso continues to trade near its lowest levels since early February.  Compared with recent months, however, the currency was rather stable throughout October, mostly remaining in a narrow band between about $0.0750 (13.33 pesos per dollar) and $0.0737 (13.57 pesos per dollar).

Comment:  As I predicted last month, the peso remained weak and under pressure in October.  Mexican exports and overall economic growth are accelerating again, which provides some support for the currency, but global investors remain concerned about a range of new developments.  Now that the U.S. Federal Reserve has stopped buying new assets, investors are focused on the likelihood that it will hike interest rates around mid-2015.  They are also concerned about new geopolitical risks, such as the worsening Ebola epidemic and the rise of the Islamic State.  On the domestic side, the government's newly expansive fiscal policy is probably unsettling some investors, though Mexico's deficit and debt levels remain comparatively healthy.

Looking forward, the fundamental headwinds discussed above will probably continue to weigh on the peso, but the renewed vigor in global financial markets that took hold at the very end of October could prompt some rebound.  In fact, technical indicators are somewhat favorable, with the peso now crossing or about to cross some key moving averages, momentum indicators suggesting the currency is oversold, and recent chart action pointing to an upward bias.  The peso's next significant resistance area is at approximately $0.0750 (13.33 pesos per dollar).  Its next major support area is at approximately $0.0737 (13.57 pesos per dollar).

Patrick Fearon, CFA
Vice President, Fund Management

                                                         U.S. Dollars Per Peso
Peso 1410

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