Mexican Peso General Info
Contributing to a little more than 2% of the foreign exchange market’s daily turnover, the Mexican peso is the world’s second most traded emerging market currency, behind only the Chinese yuan. The peso is subdivided into 100 centavos.
The peso’s value is heavily influenced by commodities prices, particularly oil.
As an emerging market currency, the peso is considered riskier than currencies from major developed nations, which means that its value will fall against those currencies (especially JPY, CHF, USD, GBP and EUR) during periods of economic uncertainty or when global geopolitical risk is elevated, or during bouts of high market volatility.
Mexicans are mostly concerned with the value of their currency against the US dollar, since more than 80% of Mexican exports go to the US, with whom Mexico shares a free trade agreement.
The peso has consistently depreciated against the dollar since its all-time high in 1972, when USD/MXN traded at just 0.01. By 1990, USD/MXN was at 2.7; at the end of 1994, after the currency was devalued by Mexico’s government, USD/MXN stood at 5.7; by the year 2000, the USD/MXN was meandering around 9.5; in 2009, the rate reached 15.6; and in January 2017, the peso reached an all-time low when USD/MXN traded as high as 22.03.
MXN - Market View
The Mexican peso has performed well against the US dollar so far in 2017, despite reaching an all-time low against the greenback in January, when USD/MXN reached 22.03 (MXN/USD 0.045). Almost all of January’s losses were reversed within the same month and the currency appreciated steadily to mid-April before reaching a plateau in strength. And despite a recent scare following reports that the Trump administration were preparing to pull the US out of NAFTA, by the end of May the USD/MXN exchange rate was back in the mid-18s, which put the peso's 2017 gain against the dollar at 11%. The peso had risen 18% from its own 2017 valuation lows.
The peso has benefitted this year from an improved outlook for emerging markets. Throughout much of 2017 there has been a significant rally in emerging market assets. The MSCI Emerging Markets Index has rallied more than 16% so far this year, easily outperforming the S&P 500 (+7.8%). In order for foreign investors to buy assets in emerging economies, including Mexico, they must first buy the local currency, and this buying drives the currencies higher.
Emerging markets will remain supported throughout the year according to a senior researcher at investment fund Ashmore.
In 2017, the peso will be vulnerable to the threat of US protectionism and to a decline in commodities prices, particularly the oil price.