MexECON Blog

Peso Review - April 2015

In April, the Mexican peso fell 0.6% against the U.S. dollar, closing the month at a spot-market value of $0.0651 (15.36 pesos per dollar).  That followed a 2.1% decrease in March, and it marked the currency's seventh decline in the last eight months.  The currency is now down more than 16.0% from its most recent high last May.  Once again, the peso was quite volatile in April, posting a strong rebound in the first week of the month, only to give up all of that ground in the following week.  The currency fluctuated widely on most days during the middle of April.  It staged another strong rally attempt toward the end of the month, but the rally again petered out by month's end.

Comment:  Mexico's economic fundamentals remain in decent shape, including a little-appreciated strengthening in the labor market that could well boost consumer spending and boost economic growth in the coming months.  Nevertheless, soft economic data out of the United States and the continued likelihood of higher U.S. interest rates are strong headwinds.

Looking forward, soft U.S. activity and the likelihood of higher interest rates north of the border will likely continue to put downward pressure on the peso.  The currency may be helped by proactive government policies, such as the Peña Nieto administration's recent budget cuts in response to lower oil prices, Banco de México's multiple dollar-selling programs to support the currency, and the central bank's promise to raise Mexican interest rates even before U.S. rates go up, if necessary to support the peso.  Still, the most likely scenario is that the peso will remain under downward pressure.  Technical indicators also point to little relief.  The peso continues to have trouble staying above its key moving averages, even though it appears modestly oversold and seems to be near a significant support level.  The peso's next major support level is at approximately $0.0640 (15.63 pesos per dollar).  On any rally attempt, the currency's next major resistance area is at approximately $0.0662 (15.11 pesos per dollar).

Patrick Fearon, CFA
Portfolio Manager

Peso 1504

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