In June, the Mexican peso declined 2.0% against the U.S. dollar,
closing the month at a spot-market value of $0.0636 (15.72 pesos
per dollar). The currency has now fallen in nine of the last
ten months, and it is down some 17.9% from its most recent high
during the spring of 2014. In fact, the peso now stands at a
record low. The currency rallied significantly into the
middle of June, but it then fell almost incessantly in the second
half of the month, giving up all of its gains and then some.
Comment: As I have been arguing
for some time, Mexico's current economic fundamentals may be
lackluster, but they should be good enough to provide some support
for the peso. Unfortunately, investors continue to discount
those fundamentals as they focus on potential problems down the
road. The main issues are the Greek debt default and a likely
hike in U.S. interest rates later this summer. In addition,
Mexico's sliding petroleum output and low global oil prices pose a
threat to the government's fiscal situation starting next year.
Looking forward, I believe the Greek situation and the potential
for higher U.S. interest rates will continue to be the main issues
for the peso. I see no reason why those issues should not
continue putting downward pressure on the currency. Moreover,
technical indicators offer little hope of a respite. Momentum
indicators suggest the peso is over-sold, but only
moderately. Chart patterns show a strong downward bias for
the currency. It is especially instructive that all four of
the peso's rally attempts since the spring have been cut short when
the currency could not hold above its 50-day moving average.
On any new rally attempt, the currency's next major resistance area
is at approximately $0.0645 (15.50 pesos per dollar). If the
peso continues to fall, I suspect that its next major support area
is around the psychologically important level of $0.0625 (16.00
pesos per dollar).
Patrick Fearon, CFA