A strong dollar would be an advantage in trade for Mexico … if there were no coronaviruses

The crisis due to the Covid-19 coronavirus pandemic has revived the price of the dollar in the currency market. The United States is one of the countries most interested in this changing.

The crisis due to the Covid-19 coronavirus pandemic has revived the price of the dollar in the currency market. Against the Mexican peso, the greenback moved from a close of 18.5520 units on February 14 to 23.1820 units per dollar on Friday, March 27, a variation of 25 percent.

Among its major peers, the dollar also appreciated as a safe haven asset. The Dollar Index (DXY) , which measures the greenback against six strong currencies, rose from a low of 94.65 units on March 3, 2019, to a high of 102.99 on March 20, 2020.

Given these and other broad movements that were recorded in the price of its currency, economic authorities in the United States took action on the matter and applied measures such as opening swap lines to several countries to push back the price. Why does the United States want to prevent the dollar from continuing to rise?

Disadvantages of a strong currency

Donald Trump, the President of the United States, accused China in August 2019 of having manipulated its currency downward to take advantage of the strong dollar through trade. Parity favored the exporting country, which was China, and complicated matters for the United States.

“A strong currency takes away your competitiveness from the point of view of the trade balance. Your products are more expensive. The United States had been involved in the trade war with China for this before the coronavirus. Now the pressure of a strong dollar returns,” he said. César Valencia, market analyst at Alpari.

Jorge CalderónDirector of Markets at Bull & Bear Fixed Income, explained that this pressure is added to that of employment. “In its recent record, applications for unemployment benefits marked a record 3 million in the United States. The most expensive dollar complicates the purchase of supplies and limits the hiring of companies,” he said.

Mexico will not be able to take advantage

Despite the commercial advantages that Mexico could obtain for a strengthened dollar once the coronavirus crisis is over, there are factors that move the forecasts for the country to negative terrain. The coronavirus crisis would impact it on different fronts and, in that case, trade would not be enough to reduce it.

“The United States this month registered its highest number in the history of applications for unemployment benefits. This means that remittances, which would have given support to the Mexican economy due to the advance of the dollar against the peso, are going to fall,” Valencia explained from Chile.

According to this expert, the forecast is for Mexico to continue its darkened path after the cut to the sovereign debt rating that the S&P agency announced on Thursday. Pemex also be the victim of their finances and the price of oil.

“Oil prices complicate Pemex’s operations and if something extraordinary does not happen, the rating agencies will reduce the note for their debt practically to the degree of junk bond. For Mexico, much will depend on the government’s response to the pandemic and the certainty that it gives for investment, which for now is not well seen in other countries, “he explained.

In this context, Valencia said, the recent cancellation in Mexicali of a Constellation Brands plant adds to the cancellation of the Texcoco airport project and the insistence on seeking oil refining when that asset is in a situation of very low profitability.

“The region in general, with the exception of Peru and perhaps Colombia, is in a very difficult time. The United States will remain the world’s strongest economy for at least several decades. Those that must react are countries like Mexico and Chile, ”he said. Despite the difficult outlook for Mexico in the face of the coronavirus crisis, Calderón affirms that the future is not entirely black for Mexico.

He affirms that the criticized lack of action by the government in the face of the pandemic opens him the possibility of later accessing funds that he has not yet used. “The strategy has been criticized, but today Mexico keeps money that it can have later on when the crisis worsens.

The situation is complicated and in the debt market, udi bonds already reflects a future increase in inflation. The Banco de Mexico has very high rates and that’s one way of answer , “he said.

Source: eleconomista.com.mx

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