Mexican Peso Appreciation Due to Dollar Weakness and Speculative Positions
The Mexican peso has continued to appreciate against the US dollar, benefiting from the weakening of the greenback following recent inflation data in the United States that fueled expectations for interest rate cuts.
Market Speculation and Positions in Favor of the Peso
Speculative net long positions on the peso in the Chicago Mercantile Exchange (CME) have increased for a fifth consecutive week, indicating market confidence in further peso appreciation.
- Positions favoring the peso in CME rose by 5,400 contracts (6.92%) to 83,400 during the week of September 19-26.
- This marks five consecutive weeks of growth, with an overall increase of 29.30% or 18,900 contracts since the beginning of September.
- Year-to-date, positions favoring the peso have surged by 343% or 64,600 contracts.
Mexican Peso Performance Compared to Other Currencies
The Mexican peso has outperformed several other currencies during this period:
- Peso argentino: 9.85%
- Mexican peso: 0.15%
- Peruvian sol: 0.14%
- Swedish krona: 0.06%
- South African rand: 0.03%
Meanwhile, some currencies depreciated against the peso:
- New Zealand dollar: 1.49%
- Canadian dollar: 1.12%
- Japanese yen: 1.06%
- Taiwanese dollar: 1.06%
- Colombian peso: 0.94%
Factors Influencing Future Peso Performance
Felipe Mendoza, an analyst at ATFX LATAM, highlighted key factors that will shape the peso’s future:
“In the coming days, the market will continue to monitor the dollar’s performance, emerging market flows, and macroeconomic data from Mexico and the United States, especially those related to consumption and inflation.”
Mendoza further explained potential price ranges for the peso:
“Should the dollar weaken, along with cautious signals from Banxico and stability in the US, the exchange rate could rise to between 18.30 and 18.25 pesos per dollar. However, a rise in US interest rates, trade tensions, or negative news about Pemex could push the peso back towards 18.50 to 18.55 pesos per dollar.”
“The Mexican peso remains in an unstable equilibrium, supported by underlying factors but vulnerable to external volatility and internal structural challenges,” Mendoza warned.
Positive Market Sentiment Towards the Peso
Jesús Anacarsis López Flores, subdirector of Analysis at Banco Base, noted the growing confidence in the peso:
“Despite the dollar’s 0.54% advance (based on the weighted index) during the week, positive US economic indicators and cautious comments from Fed officials regarding interest rate cuts have bolstered the peso.”
López Flores pointed out that Reserve Federal Chair Jerome Powell did not signal an imminent rate cut and instead focused on dual mandate risks.
“The exchange rate could return to the year’s minimum of 18.20 pesos per dollar in the coming days,” López Flores added.
Key Questions and Answers
- Q: Why is the Mexican peso appreciating against the US dollar?
A: The Mexican peso is strengthening due to the weakening US dollar, fueled by recent inflation data in the United States and expectations of interest rate cuts. Additionally, speculative net long positions on the peso in Chicago Mercantile Exchange (CME) have increased for five consecutive weeks, indicating market confidence in further appreciation.
- Q: How have other currencies performed compared to the Mexican peso?
A: The Mexican peso has outperformed currencies like the Argentine peso, Peruvian sol, Swedish krona, and South African rand. However, it has underperformed the New Zealand dollar, Canadian dollar, Japanese yen, Taiwanese dollar, and Colombian peso.
- Q: What factors will influence the Mexican peso’s future performance?
A: Key factors include the US dollar’s performance, emerging market flows, and macroeconomic data from Mexico and the United States, particularly those related to consumption and inflation. Additionally, signals from Banxico (Mexico’s central bank) and stability in the US will play a role.
