Peso hits post election high as Banxico begins FX hedge

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Mexico’s peso firmed to its best level since the US elections after a successful start to the Bank of Mexico’s foreign exchange hedging programme.
The peso touched 19.45 to the dollar during the morning, its strongest since the 18.3 level it was trading at on the day of the US election, before Donald Trump’s victory sent it crashing 14 per cent, writes Jude Webber in Mexico City.

The peso had already firmed strongly last Friday after Wilbur Ross, US trade secretary, said a sensible reform of the North American Free Trade Agreement could help the peso, and called for a credit line between the Federal Reserve and Mexico – something Bank of Mexico Governor Agustín Carstens has flatly ruled out.

Juan Francisco Caudillo, a strategist at brokerage Monex, said much of the positive peso sentiment appeared priced in. The peso had firmed to 19.5 at the end of last week and strengthened to 19.65 from 20.4 when Banxico announced its foreign exchange hedging programme a fortnight ago, he noted.

“[Today’s auctions] were a success,” said Janneth Quiroz, deputy director of economic analysis at Monex.

As expected, Banxico assigned the full $1bn it had announced in the six auctions it held, but there was more demand for the short-term auctions. The first, which expires on April 5, was more than two-times oversubscribed, with orders totalling $420m for the $200m assigned, Banxico said on its website.

That suggests the market is betting on the peso holding firm for the next month – around 19.57 – although not as high as 19.48, the highest level for which a few offers were made, Ms Quiroz said.

But don’t relax just yet, cautioned Mr Castillo. He noted that the peso’s moving 200 day average was now 19.55, and expected the peso to fall back temporarily once it reached that sustained level. The dollar index of how the greenback is performing against major currencies also indicated that the dollar had further to strengthen, he said.

“There are still [downward] risks for the peso,” he said, adding the peso could touch 22 or 22.5 to the dollar in a few months if there were shocks on Nafta and an upset in the French presidential election. The peso was not only hammered on the US election, it also suffered during Brexit because it is widely used as a proxy to hedge emerging market risk, so a win by far-right contender Marine Le Pen in the French vote next month could bring more peso pain.

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