Mexico’s peso continues record drop, joining a rout in emerging markets


The Mexican peso has been under heavy pressure in recent months, now with even more renewed weakness as it approaches the 17.00 handle versus the U.S. Dollar. These are record lows for the Mexican currency and approaching levels  where the central bank has felt the need to intervene in the banco-de-mexico7.gifmarket to defend the currency. Depreciating around 12% this year versus USD with now continued weakness – the latest selling taking place Friday in a string of new lows for the currency. Mexico currently sits on 3% interest rates with the next monetary policy meeting taking place on September 21st, and analysts expect the Banco de México to match any interest rate increase by the Federal Reserve on the 17th of September, regardless of the level of the Mexican peso.

 

Mexican Peso approaching the $17.00 handle vs. the Dollar as record weakness persists.
Mexican Peso approaching the $17.00 handle vs. the Dollar as record weakness persists.

 

While making goods purchased in USD more expensive for peso holders, on the flip side – sunny Mexican vacations are coming at a premium discount for Americans with the recent strength in the dollar. The question now is will the Federal Reserve lift rates starting in September, or will recent economic indicators and dollar strength make for a delay until December or even sometime starting in 2016?

Other Emerging Market Currencies Battered

Renewed weakness in the Russian ruble and Central Asian currencies also have picked up with oil losing it’s footing in the recent risk-off shift in the market. As followers of the currency market know, in 2014 the ruble lost about half its value against the dollar due to a sharp decline in global oil prices. Also, during this period several major Russian banks became subject to sanctions by the West over Moscow’s alleged involvement in the Ukrainian crisis contributing to the currency rout. Now, the ruble is again weakening  approaching the 70 RUB to 1 USD handle in the latest down slide. Russia’s ally Kazakhstan also had it’s currency, the tenge plunge by about 25% on Thursday after the central bank stopped managing the exchange rate.

 

The ruble also tumbled against the dollar to near 67.44, its weakest against the greenback since February. Kazakh Tenge Loses More Than a Quarter of its Value Against the Dollar
The Ruble also tumbled against the dollar to near 67.44, its weakest against the greenback since February. Kazakh Tenge loses more than a quarter of its value against the dollar in one day.

 

Lastly, the Turkish Lira is being bruised with political uncertainty, coupled with a surge in militant conflict. All of this has combined to shatter investor confidence and send the Turkish Lira on Thursday to a record low of 3.0 against the dollar – a plunge of some 22% so far this year.

 

10 year chart of U.S. Dollar vs. Turkish Lira
10 year chart of U.S. Dollar vs. Turkish Lira

With all of this action taking place and China’s sudden move to weaken their currency has policy makers in the United States now questioning further delays in raising rates, more volatility to come?

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Mexico's peso continues record drop, joining a rout in emerging markets

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