MexECON Blog

Peso Review - June 2015

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
Portfolio Manager

Peso 1506

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