Daily Management Review

Mexican peso gets a new lease of life


04/04/2017


This year the Mexican peso became the hottest currency, and now hedge funds gave this rally a new impetus.



Max Pixel
Max Pixel
It is the first time since last May when investors are actively forming "bullish" positions. This is evidenced by the latest data from the Commission on Trade in Commodity Futures USA.

Positions of "bears" reached a record level in October on the background of assumptions that Trump's promises to support production in the US would be a disaster for Mexico's export-dependent economy. This year, however, the peso has become the world's best currency, mainly because of investor's efforts.

With respect to the dollar, the Mexican currency rate increased by 11%, and this represents a striking difference with the record lows that were set after Trump's victory. The rally was prompted by an idea that sale of the peso was too vigorous because of lack of clarity regarding Trump's trade policy, as well as intricate comments from US officials.

Now Trump's plans for the future no longer seem as terrible as before. Currently, the White House in general is less active in talking about measures that could dramatically reduce Mexican exports to the US.

In addition, President Trump's administration probably decided to take a break, as it will be necessary to spend time and resources on explaining and defending its position regarding Mexico. This will further reduce the political capital necessary for reforming relations with Mexico and the NAFTA.

For the week ending March 28, the net long position of hedge funds was 8,361 thousand contracts. This is not much, yet compared to the "bearish" position of almost 100 thousand contracts in October, the situation looks a bit different.

In any case, the peso finished a long strip consisting of 10 quarters in a row, when its value was falling, and the monthly volatility was approaching the eight-month low.

The Mexican peso rate has been experiencing a serious pressure from the middle of 2014, when a sharp collapse in oil prices began. In 2016, Donald Trump’s victory in the presidential elections in the United States has become yet another reason for the peso weakening.

In total, since the early 1990s, Mexican peso collapsed from 32 US cents to 5 cents, meaning Mexican producers are not accustomed to a weak national currency. Thus, any strengthening of the currency turns out to be an unusual situation.

In fact, it is even necessary keep the peso from growing, while stabilizing it. Now there is a discussion of the possibility of updating the NAFTA agreement. Canada and Mexico are ready to meet the US, and, apparently, the new version will include a mechanism to ensure the currency’s stability.

In 2016, Mexico's trade deficit was $ 63 billion. This is only slightly inferior to Japan and Germany, so this is a matter of principle for America. At the same time, trade within NAFTA plays an important role for the United States. 

Without the NAFTA, the trade deficit with Canada and Mexico would be about 3% more, so there will not be a drastic change in the agreement.

source: bloomberg.com






Science & Technology

Artificial Intelligence Helps NASA Find An 8th Planet In Orbit Of A Distant Star

Australian Research Success Could Mean Shatterproof Cell Phones Could Soon Be A Realityv

Top ten hi-tech events of the year

Tesla Considering Designing And Developing AI Chips On Its Own To Support Its Auto-Pilot Project

Verizon to introduce 5G in five American cities in 2018

Airbus, Rolls-Royce, Siemens to create an electric aircraft

Study Finds Treatment Efficacy Could Be Sacrificed For Reduced Side Effects In Cancer Therapies By Patients

Some Information About Their Self-Driving Car Research Has Been Disclosed By Apple Scientists For The First Time

A Massive Data Breach Was Covered Up By Uber By Paying Up Hackers

A City Is Can Be Converted To A Living Organism, Showcases China’s Huawei

World Politics

World & Politics

Monitoring Citizens Main Reason For North Korea To Allow Use Of Smartphone By Citizens

Phase Two Of Brexit Talks, Announced On Friday, Would Be Tough, Analysts Say

Elections in Italy: the last chance of Eurosceptics?

15 countries with the highest level of organized crime

Athens agreed with international lenders

EU Pressure Reportedly Forces UK To Bow Down, Could Agree To Pay £50bn For Brexit Divorce

$1 Billion Is The Price For Freedom For Arrested Saudi Prince In Corruption Crackdown: Reports

U.S. Capital Washington Appears To Be In Range Of The Latest Missile Launched By North Korea