The trajectory of the USD-PESO exchange rate

Global markets are in the game of “recession yes, recession no”, which increases the financial volatility that affects the dollar and the peso

The Mexican peso has begun a stage of ups and downs that can lead it to modify the status that had characterized it in the last 18 months as a result of a high and nominal rate of foreign investment , plus the relative stability with which it led to the political transition in the country took place at the end of last year.

Three factors will be the determinants for the trajectory of the exchange rate in Mexico in the coming weeks and months, they have to do with totally external elements of an order, although repercussions are observed at the national level.

More than an estimated price, the analyzes that must be done will be on the trend of the exchange rate in the country. Although the closing of yesterday of 19.8450 pesos per dollar in the interbank market is the highest level of the year, it is not yet the highest point of the exchange rate, this is located almost at 22 pesos per dollar, since 19 In January 2017, the interbank price marked the one that so far is the highest price for the US currency: 21.93 pesos in the interbank market.


No scenario is discarded.

Without speculation, considering only the prices that the exchange parity has registered at other times, we observe that the potential for the dollar currently increases in the national market is approximately 10.5% , only in the path that the type would make of change of yesterday’s closing level, the highest so far this year, at the highest current closing level in the history of the market, located at 21.93 pesos per dollar as we have already indicated.

Of course, an adjustment of this magnitude would result in negative short-term consequences while the economy and its agents absorb the exchange rate impact. It is an unwanted scenario and at this moment unlikely despite the recent pressures we have observed on the exchange rate, but also not ruled out because, as we noted, this potential for increase is based on prices that operators have already recorded.

These are the three factors that currently play against the peso and that explain the adjustment of recent days, would also determine to a large extent greater weakness of our currency for the following sessions:

1)  The cut in interest rates:  As we pointed out on multiple occasions, the greatest support for the strength of the peso was the interest rate in Mexico, very high in nominal and real terms. Last week the Bank of Mexico (Banxico) reduced the reference rate for the first time since 2014 and although it denied the beginning of a bearish cycle, the markets put their beards to soak, especially because this interest rate adjustment Mexico has everything to do with the global context, that is, worldwide rates are going down and it is very likely that Banxico, although it would continue to deny a bearish cycle, cut its rate again if external pressures continue. Although Mexican rates remain highly competitive, it is a global context of monetary relaxation against which capitals reduce their risks in markets such as Mexico, punishing the currency.


If a high-interest rate attracted capital to Mexican markets and strengthened the currency, it is logical to expect that a cut of this same rate will have the opposite effect, at least initially. Especially, capitals move by the interest rate because their declining trend in the world is due to a low growth situation, if there is uncertainty in the financial places of industrialized countries, emerging markets are not saved.

2)  Tango effect, Argentina is in Latin America:  The problems in Argentina are worsening every day, this country seems to be in a spiral from which it could take a long time to leave. On other occasions, we point out that Argentina has registered so many crises in the last three decades, that little by little it has lost influence in the regional concert, but, it is still a Latin American nation. Argentina is in the region, its economy is collapsed and it is not because of a paramilitary management type Venezuela, which would explain everything; The failure of Argentine economic management has many edges and several of them could be reproduced in other nations. The Mexican peso along with the rest of the currencies of the region already suffers the consequences of what happens in the southern cone, with an Argentine economy that, it hurts to say, is practically bankrupt. As we pointed out, the solutions for this nation, whatever they are, unfortunately, are not in the short term, the clouds of crisis will be stationed there for a long time, spreading pessimism to the rest of Latin America.

Argentina and Latin America

3)  Global volatility kills interest rates:  The world’s markets are already moving in the game called “recession yes, recession no”; In this sense, they have been flooded with volatility and uncertainty and this generally affects the weakest currencies of the world, which have the economies with less development and growth. It is curious that just a few weeks ago the strength of the dollar in global markets also explained the strength of the Mexican peso, and now that same strong dollar hits the Mexican currency; Markets are unpredictable and often have no logic, or this is not seen at first sight. It is not necessary to explain too much that, in a context of financial volatility and global uncertainty, the peso leads to losing.

Special Investor confidence has an impact

The rising potential of the US currency against the peso is a lot, and only if we consider the prices we have already observed. 

Source: alto nivel

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