The year started off very strong for the Mexican peso, by the end of January, the peso had soared more than 5 percent. No other currency in the world, save Norway’s krone, was hotter than the Mexican peso. (The Columbian peso was equally as strong as the Mexican peso).

The reasons for the gains in the Mexican peso hinged on optimism that Nafta renegotiation talks were going well and investors didn’t appear to be worried about the upcoming presidential elections. That confidence seems to be wavering as the peso has plunged 4.8 percent since its low of on April 17th. Leftist candidate Andres Manuel Lopez Obrador, known as AMLO, has shown no signs of squandering his 20-point lead in polls before the July 1 vote. Subsequently, Mexico’s currency has been one of the worst performers in recent weeks.

Some think that the markets have yet to fully price in the election risk. Lopez Obrador has the support of 47 percent of potential voters, far ahead of runner-up Ricardo Anaya, with 27 percent  according to Bloomberg’s Poll Tracker.

Investors appear to be suddenly waking up to the possibility that Lopez Obrador will not only win the presidency but be able to gather a coalition who could push his policies forward. There’s also concern that his promised social spending could blow out the budget deficit, even though he may moderate his platform after the election.

The strength in the US dollar is apparent in the chart below. The dollar had been flat, flirting with a potential collapse over the last three months. That has all changed over the last two weeks. The likelihood is that the dollar has seen most of its appreciation, with overhead supply at the 93-94 price level, it is currently trading at a little over 92 on the spot market.

Taking a look at the USD/Mexican peso you can see the downtrend has been broken. The question now is whether the elections in Mexico have been discounted already. If they have then we shouldn’t see much more erosion of the peso. If not?

Pin It on Pinterest

Share This