​Mexican Peso: A Pummeled Piñata, But Candy Awaits

Ivan Illán |

The Mexican Peso (MXN) has fallen dramatically post-Trump victory (see chart below). From November 8, 2016 through January 6, 2017, the peso fell more than 15% relative to the US Dollar (USD). The drivers for this movement have been clear. Fears abound, as Trump rhetoric on border security and wall building, tariff impositions, and a wholesale review of the so-called “worst deal ever” – NAFTA, have weighed heavily on the peso’s current value and outlook.

To add to these US-centric political pressures, a recent move by the Mexican government to cut gasoline subsidies is sure to contribute to rising inflation, which would further hurt their waning domestic consumption (see chart below) while increasing the possibility of recession in Mexico this year. With all these headwinds, it’s no wonder that the Mexican peso has been treated like a piñata at a kid’s birthday party. But, there’s a bright side.

The biggest positive for the peso’s future is that nearly 40% of the imported goods value from Mexico to the US is actually “Made in USA”. This means that potential US tariffs imposed on imported Mexican goods would have the effect of directly impairing the earnings of the very US companies that Trump has vowed to protect. In addition, Mexico is a consumer nation, and it’s in the US's best interest to keep our neighbor to the south in a healthy economic state. Mexico buys more from the US than Brazil, Russia, India, and China – combined! A severely devalued MXN would only serve to backfire on US interests, making US goods too expensive, and ultimately hurting US corporate revenues and earnings.

Though the year ahead will undoubtedly be a volatile one for the MXN/USD exchange rate, it will most likely bottom out around 23 MXN / 1 USD as Trump administration rhetoric heats up later this year. By year-end, it would be realistic to see the peso strengthen to levels seen prior to the November 2016 election, in the 18.25 to 19.75 MXN / 1 USD range. Such a recovery would be viewed as sweet candy indeed, by both domestic Mexican business consumers and the many US exporting companies who are so reliant on their orders. – I.M.I.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Emerging Growth

CMX Gold & Silver Corp.

CMX Gold & Silver Corp is an exploration stage company. The Company is engaged in the acquisition, exploration and development of silver and copper/gold properties in the USA.

Private Markets


Our mission is to be the best place for people who care about music to create and discover thoughtfully curated playlists. In essence, 8tracks is a platform for online mixtapes.

Quants Inc

Quants, Inc, a California Corporation, develops, markets and operates financial technology platforms and alternative investment products offering sophisticated risk management since 2010. The Company has primarily sharpened its focus with…