Mexican Peso Seen Depreciating Despite its Recent Strength

Speculation on the Chicago Mercantile Exchange points at the Mexican currency falling following its 2.74% appreciation

Mexican peso speculators on the Chicago Mercantile Exchange (CME) have once again raised their expectations of the currency’s depreciation, despite having shown a 2.74% appreciation in recent weeks
August 15, 2022 | 06:55 PM
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Mexico City — Mexican peso speculators on the Chicago Mercantile Exchange (CME) have once again raised their expectations of the currency’s depreciation, despite having shown a 2.74% appreciation in recent weeks.

At the close of Friday, August 12, net speculative positions of the Mexican peso in Chicago totaled 27,600 negative contracts, each for 500,000 pesos ($25,214), an acceleration of 4,600 contracts from the previous week.

The data corresponds to the week of August 3-9. The main catalyst for the period was the better-than-estimated US inflation data.

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“Market expectations pointed to a possible moderation in the Fed’s rate of hikes, discounting +58 basis points in the September meeting,” Banorte analysts wrote in a note.

In the US, inflation rose 8.5% annually, the lowest level in the last three months, while analysts had expected an increase of 8.7%.

During the aforementioned period, the index that measures the performance of the dollar against a basket of currencies showed a depreciation of 0.11%, going from 106.377 to 106.252 points, according to Bloomberg data.

“The dollar weakened after the publication of the inflation report, as the probability that Federal Reserve officials will choose to reduce the pace of interest rate increases in the coming months rises,” said Gabriela Siller, director of economic and financial analysis at Banco Base, in a report.

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Mexican ‘super peso’ remains positive

Despite speculation that the peso will depreciate, Banorte analysts believe that the Mexican currency has the potential to extend its appreciation against the US dollar.

“The Mexican peso could continue to stand out among its peers, retaining a resilient dynamic in the short term,” they wrote.

There are three elements that support the Mexican ‘super peso’. The increase in the interest rate by the Bank of Mexico, a lower volatility against emerging currencies, particularly those of Latin America; the proximity to the US through remittances, exports and tourism; and a more stable economic framework, according to the analysts.

“With the recent rally in the currency, the space for further appreciation is limited, so we consider further dollar purchases at current levels attractive.”

Banco Base’s Siller does not rule out that, in the coming months, the Mexican peso will register volatility, taking it to levels of 20.50 to the US dollar, or higher.

Banorte analysts estimate meanwhile that the Mexican peso will trade in a range between 19.60 and 20.30 to the dollar,

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