Forex Outlook: Mexican Peso (MXN) Continues To Depreciate

on Nov 14, 2012
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On November 14, Bloomberg reported that Mexico’s peso posted its longest losing streak since August with global economic concerns weighing on the currency. The peso, which has recently gained a lot of popularity among investors, is up 5.2 this year.

**Mexico’s Peso Continues to Depreciate**
The peso posted a 0.3 percent loss at 4 p.m. in Mexico City on November 13, falling to 13.2477 per dollar, marking a fifth consecutive day of declines and the longest losing streak since the period ended August 30.
The peso moved alongside other emerging market currencies with Eurozone-related woes prompting investors to shift away from riskier assets to haven currencies. The ZEW Centre for European Economic Research indicated that the Eurozone crisis was having a growing impact on Germany, whereas the Eurozone finance ministers and the International Monetary Fund failed to agree on how Greece would repay its debt. Those negative developments weighed on the peso since they fuelled concerns as regards the markets for Mexico’s exports.

“I would expect it to weaken further,” pointed out Flavia Cattan- Naslausky, a strategist at Royal Bank of Scotland Group Plc (LON:RBS), as quoted by Bloomberg. “The finance ministers in Europe, their public disagreement with regards to Greece, has really sort of tainted a bit the external appetite.” Although the peso has advanced by more than five percent this year, it has declined about one percent this month.

The peso is also vulnerable to the risks associated with the looming US fiscal cliff, given that the US is Mexico’s main export market.
**“Automatic Stabiliser”**
It would seem, however, that the peso’s recent continued depreciation does not worry Mexico’s officials with Reuters reporting that the country’s deputy finance minister Gerardo Rodriguez noted that he was not worried by the peso’s nearly 0.6 percent dip early on November 13. “The (peso) is operating like an automatic stabiliser of the economy, reacting to the changes in the (world) environment,” Mr Rodriguez pointed out, as quoted by Reuters, adding that he did not see the risk of capital outflow rising. “If there were an abrupt reversal in (capital) flows, that is one of the risks that we need to keep monitoring.”

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