The “superpeso”: Mexican currency appreciates more than 12% in the middle of the year

The Mexican currency lives the phenomenon baptized as ‘superweight‘ after a historical appreciation of more than 12% against the dollar in the first half of the year, a milestone that is explained by the relocation of chains or ‘nearshoring’, remittances and a favorable outlook for inflation.

The Mexican currency went from a price of 19.5 units per US bill on the last day of 2022 to 17.12 at the end of the first half of 2023, an advance of 12.3%, remaining until the first session of the second half of the year.

This appreciation occurs after the Mexican peso reached levels of 24 pesos per dollar in the second quarter of 2020, the height of the COVID-19 pandemic in the country.

stabilization and appreciation

Enrique Covarrubiaschief economist of the bank actinverpointed out in an interview that the dynamism in the year is due to the fact that the peso is an asset that depends on supply and demand.

“And what has happened is that there has been a lot of demand for Mexican pesos globally for reasons, mostly good.”, he commented.

The specialist explained that the peso still has a technical space to continue its advance up to 16.5 units per greenback and reach the turning point for its stabilization.

He said that 17 pesos could be a good floor for the stabilization of the Mexican currency, while the consensus of private analysts expects it to close the year at 18.32 pesos per dollar.

While, Gabriela SillerDirector of Economic and Financial Analysis of the bank Baseestimated that the Mexican peso could continue with positive variations until the third quarter of the year and reach 16.9 pesos per dollar.

“The so-called superpeso can continue to appreciate even more, especially if the good outlook for the Mexican economy is maintained at the international level due to the opportunity of ‘nearshoring’“, he pointed.

The analyst indicated that it is necessary that there is no greater aversion to global risk, due to the war between Russia and Ukraineas well as in the national field, by economic policies.

“Above all, on the autonomy of the Bank of Mexico or that generate the possibility of cuts in the credit rating”, he abounded.

Nearshoring effect

Both analysts considered that the relocation of Asian companies to Mexican territory due to the US trade blockade of China has benefited investments.

covarrubias explained that an analysis of actinver throws that the ‘nearshoring‘ has benefited the exchange rate by up to 2.50 pesos.

Another way of looking at it, he said, is that “the exchange rate should be close to 19.50 pesos per dollar, if there had not been ‘nearshoring’”.

Region with the largest rate reductions

Also, the economist actinver indicated that Mexico It is undergoing a downward trend in inflation, which could put pressure on interest rate cuts by the Mexican central bank.

He also anticipated that this effect would permeate all of Latin America during the second half of the year, since “certain political pressures have dissipated”.

In this sense, he contrasted that Mexico It has been distinguished by more favorable economic issues, such as a greater demand for Mexican products abroad, investment opportunities, and economic integration with the United States.

covarrubias highlighted that another great boost has been remittances to Mexicowhich since last April registered the highest annual accumulated since it has been recorded, for almost US$ 60,000 million.

“That’s an impressive number, it’s the equivalent of a full Tesla plant every month.”, he explained.

Red flags: public debt and exports

Despite the milestone, Siller qualified that this “superweight” also affects those who receive remittances in Mexico because they will see “the greatest loss of purchasing power”.

The analyst of Base Bank pointed out that in the administrative field the appreciation of the peso has benefited Mexico due to the reduction of inflationary pressures, due to imported merchandise.

While in public finances they are affected by foreign debt.

The economist also observed that there is damage to exporters who see their value diminished.

While covarrubias He argued that the greater commercial integration with North America has boosted the productivity of companies in Mexicowhich has managed to balance the losses.

Source: EFE