04 /12 Closing Prices / revised 04/12 2024 21:59 GMT 04/11   OPEC Basket    $90.62 +0.24  | 04/11   Mexico Basket (MME)   $79.22   +0.60  | 02/12    Venezuela Basket (Merey)  $67.27  +0.77  | 04/11    NYMEX WTI Texas Intermediate May CLK24   $85.66  +0.64 | 04/11    ICE Brent June  BRNM24      $90.45  +0.71    | 04/11     NYMEX Gasoline May RBK24   $2.80   +.1%   |  04/11   NYMEX  Heating Oil May  HOK24   $2.69  +1 %   | 04/11     Natural Gas May NGK24    $1.77  +0.3% | 04/12    Active U.S. Rig Count (Oil & Gas)    617   -3  | 04/12    USD/MXN Mexican Peso  16.6441  (data live) | 04/12    EUR/USD    1.0643  (data live)  | 04/15      US/Bs. (Bolivar)   $36.29470000 ( data BCV)  

Goldman Adds to Calls on Overvalued Mexico Peso After Rally – Bloomberg

  • Peso may strengthen to 15.10/USD if “misvaluation” continues
  • Bank of America warns currency is vulnerable to a US downturn
Mexican peso banknotes arranged in Axtla de Terrazas, San Luis Potosi, Mexico, on Sunday, April 2, 2023.
Mexican peso banknotes arranged in Axtla de Terrazas, San Luis Potosi, Mexico, on Sunday, April 2, 2023. (Mauricio Palos/Bloomberg)

Michael O’Boyle, Bloomberg News

EnergiesNet.com 06 22 2023

The Mexican peso is looking increasingly overvalued, according to Goldman Sachs Group Inc, after a stunning rally that has brought it to the strongest level since December 2015.

The peso gained 17% over the last 12 months, making it the top performing major currency over that period, according to data compiled by Bloomberg News. That could be a result of an occasional “misvaluation” of the peso, wrote Goldman’s Teresa Alves, saying it’s not uncommon for the peso to be mispriced. 

Mexico’s currency has been propped up by interest rates above inflation, strong inflows from remittances, and fiscal and political stability that make it stand out from other emerging markets. Latin America’s second-largest economy has also become a destination for companies looking to relocate factories closer to the US market, a trend called “nearshoring” that is boosting investment and demand for the currency. 

Even with the current rally, the peso could strengthen even further, say Goldman and Brazilian brokerage XP Investimentos. The peso could rise to as strong as 15.10 per dollar if the mispricing becomes “extreme,” Alves wrote in a note. A similar “misvaluation” phenomenon happened under the presidency of Donald Trump in the US, in which the peso was weaker than it should have been for an extended period of time. 

Mexico's Real Effective Exchange Rate Reaches 10-Year High | The sharp rally has led analysts to dub it "super peso"

“We continue to see the Mexican peso as a currency that should continue to deliver positive total returns, but with an increasingly tougher climb to appreciate on a spot basis,” Alves wrote in a note published on Wednesday.

To XP’s Marco Oviedo, the high rates environment could lead the peso to become as strong as 16.30 per dollar by year end if portfolio inflows pick up. Mexico’s central bank has telegraphed it will keep its key rate on hold for several months, even as inflation starts slowing. 

The peso slipped as much as 0.5% against the dollar Thursday after data showed inflation in early June cooled more than expected before paring losses ahead of the central bank’s policy decision later in the day. Policymakers are expected to keep the main rate steady at 11.25%. 

Mexican Peso Volatility Hits 20 Month-Low, Underpinning RallyMexico Inflatio

Meanwhile, volatility in the currency has fallen to its lowest since October 2021, which may entice more carry trades. XP’s Oviedo thinks the peso could stay strong even if the central bank begins to cut later this year. 

Still, there are some risks ahead. A key question ahead is whether the peso could be vulnerable to an economic downturn in the US, Alves wrote.

Analysts at Bank of America Corp are also cautious, noting the peso is almost 20% overvalued relative to global factors. The high carry offered by peso assets over benchmark US interest rates can explain most of the currency’s strength, Christian Gonzalez Rojas wrote in a note. Bank of America also warned that a US downturn could quickly unwind carry bets and take the peso with it. 

“Our view is that investors should be cautious in weighing the tradeoff between earning carry and the potential downside in spot returns,” Gonzalez Rojas wrote. 

bloomberg.com 06 21 2023

Share this news

Support EnergiesNet.com

By Elio Ohep · Launched in 1999 under Petroleumworld.com

Information & News on Latin America’s Energy, Oil, Gas, Renewables, Climate, Technology, Politics and Social issues

Contact : editor@petroleuworld.com

CopyRight©1999-2021, EnergiesNet.com™  / Elio Ohep – All rights reserved

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission fromPetroleumworld or the copyright owner of the material.

Scroll to Top