The peso starts the session with a depreciation of 0.29% or 5.8 cents, with the exchange rate trading around 19.93 pesos per dollar, after reaching a maximum of 19.9458 pesos overnight.

Peso

The depreciation of the Mexican peso could be mainly due to two factors:

First factor

An increase in Treasury bond yields, particularly the 10-year bond, which is used as a benchmark for the long-term risk-free rate.

The yield rate on 10-year Treasury bonds increased by 1.4 basis points, reaching 1.58%, about 5.5 basis points above the recent low of 1.5268%, reached on April 15.

The increase in this yield reflects the market’s expectation that the economic recovery is being accelerated, which favors investments in riskier assets.

Likewise, it strengthens the expectation that there could be inflationary pressures and / or that the Federal Reserve could moderate its monetary stance, which discourages investments in assets with fixed income, such as government bonds.

In the foreign exchange market, this causes a strengthening of the US dollar against its main crosses.

Second factor

A depreciation of the South African rand, after the Finance Minister of that country indicated that the approval of energy reforms is a priority to achieve economic recovery.

In fact, in the broad basket of major crosses, the South African rand is the most depreciated currency, with a loss of 0.40 percent.

The Mexican peso follows as the second worst performing currency and a high correlation is observed in its intraday movements.

This is due to the fact that the Mexican peso is one of the most liquid currencies of emerging economies and that it is traded 24 hours a day, so it is used to speculate on events in other emerging economies, even though it does not directly affect Mexico.

Foreign trade

Regarding economic indicators, in Mexico the Trade Balance for March showed a deficit of 3.004 million dollars, after the surplus of 2.681 million dollars observed in February, according to original figures.

Thus, in the first quarter of 2021, the trade balance registers a deficit of 1,559 million dollars, the first since the second quarter of 2020.

During March, a significant reactivation was observed in international trade after weather conditions had limited it in February.

According to seasonally adjusted figures, in March total exports advanced at a monthly rate of 4.3%, the highest since October 2020, after having registered two months of consecutive setbacks.

At an annual rate, total exports grew 9.9 percent.

In the interior, oil exports grew 18.6% monthly, while non-oil exports increased 3.6 percent.

Specifically, manufacturing exports advanced 3.7% monthly, after two months of contractions.

The monthly decrease of 1.6% in exports from the automotive sector stands out, being the second consecutive decline (-11.5% in February).

In the first months of the year, the production of the automotive sector has been limited by the global shortage of semiconductors.

Yesterday, the Volkswagen company announced that production of its Tiguan model will be suspended from May 6 to 16 and of the Jetta model from May 3 to 19, so that the automotive industry and exports of the sector will continue to show an impact during the second trimester.

External purchases and the peso

Imports showed the most significant recovery, growing at a monthly rate of 18.3%, while at an annual rate they increased 25.9%, according to seasonally adjusted figures.

Within imports, those of intermediate-use goods were those that showed the highest monthly increase, advancing 20.6%, being the highest growth since June 2020.

It should be remembered that imports of intermediate goods are used to produce goods and to satisfy external demand and are therefore a barometer of global economic recovery, mainly in the United States.

Imports of consumer and capital goods also showed significant monthly increases of 10.6% (the highest since November 2020) and 8.9% (the highest since March 2015), respectively, reflecting greater strength in domestic demand as of March .

During the session, the exchange rate is expected to trade between 19.89 and 20.02 pesos per dollar.

The euro starts the session with an appreciation of 0.02%, trading at 1.2089 dollars per euro, while the pound gains 0.12% and is trading at 1.3915 dollars per pound.

Money market and debt

In the United States, the yield on 10-year Treasury bonds increased 1.4 basis points, to 1.58%, while in Mexico the yield on 10-year M bonds remained unchanged at 6.71 percent.

Derivatives market and the peso

To hedge against a depreciation of the peso beyond 20.00 pesos per dollar, a purchase option (call), with an exercise date within 1 month has a premium of 1.90% and represents the right but not the obligation to buy dollars in the aforementioned level.

On the other hand, the interbank forward for sale is at 19.9879 at 1 month, 20.3410 at 6 months and 20.7992 pesos per dollar at one year.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE