Is the Peso Primed for a Rally?
The Mexican peso has been getting beaten up lately, but that could be changing.
If you were long the Mexican peso in the first quarter, you probably felt pretty good. But in the last few weeks - ai yi yi!
Blame Europe, says Nick Bennenbroek, head of currency strategy at Wells Fargo .
"The ongoing and uncertain European developments have contributed to a rise in peripheral euro zone bond yields, while global equity markets have dropped by 10% since mid-March," he says. That's important because "the peso is among the currencies that are most sensitive to swings in global equity market moves."
Closer to home, the peso has been hurt by concerns about Mexico's presidential election on July 1. Bennenbrook believe that the pro-foreign investment candidate, the PRI's Enrique Pena Nieta will prevail, which could provide peso support. And he notes that the peso has been hurt by positioning shifts, with a precipitous drop in long peso positions over the past few weeks - but economic trends have been turning more bullish.
"Overall, it is clear that the recent weakness of the peso is largely a globally inspired sell-off," says Bennenbrook. He argues that the current weakness will prove to be a buying opportunity, and thinks the dollar-Mexico pair will move to 13.00 in a year's time.
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