The peso closed the session with an appreciation of 1.88% or 46.1 cents, trading around 24.12 pesos per dollar, ranking as the most appreciated currency in the basket of major crosses, along with the South African rand that advanced 1.29%, the Japanese yen that appreciated 0.18% and the Australian dollar that showed an advance of 0.11%. The Peso advancement is mainly due to the following factors:

First factor

In the raw materials market, the price of WTI oil registered a 7.53% advance, trading at $ 21.27 per barrel, amid speculation that the rate of accumulation of oil inventories in the United States is slowing down.

If it is confirmed in the session on Wednesday that US oil production continues to fall, oil prices are likely to remain stable, trading at around $ 20 per barrel.

During the session there was a clear correlation between the performance of the exchange rate and the price of oil.

Second factor

In Mexico, remittances for March were published, which stood at 4,016.12 million dollars, a new high, rising 35.77% compared to the same month of 2019.

During the first quarter, remittances totaled $ 9,293.19 million, a growth of 18.35% compared to the first quarter of 2019.

Considering an average exchange rate of 22.31 pesos to the dollar in March, remittances in the month stood at 89,588.3 million pesos, being the maximum in the registry and showing an increase of 57.86% compared to the same month of 2019.

The surprising growth in remittances may be the result of 1) a drop in economic activity in Mexico, which forced the sending of larger remittances and 2) of the increase in the exchange rate, which encouraged the sending of remittances to take advantage of the rise.

Third factor

In the following months, remittances are likely to show declines due to higher unemployment in the United States.

Fourth factor

In the week between April 22 and 28, net speculative positions awaiting a peso recovery rose by 7,241 contracts to a total of 8,481 contracts, each of 500 thousand pesos.

After the strong depreciation of the peso since the second half of February, the market seems to stabilize, allowing speculative positions in favor of the Mexican peso to recover.

It should be noted that this is the first week since January that an increase in positions in favor of the peso is observed.

In the money market, the rate of return on 10-year M bonds fell 7.6 basis points during the session, standing at 6.53%, indicating a probable inflow of capital. Over the past five sessions, the 10-year M bond rate has decreased by 43.2 basis points.

Leading indicators

It is important to point out that not everything during the session is positive, despite the fact that the peso observed a recovery in the short term, the macroeconomic context is unfavorable.

The manufacturing IMEF indicator stood at 40.5 units during April, showing a decrease of 3.7 points, thus spinning the twelfth consecutive month below 50.

Within the index, the five components of the indicator recorded falls. On the other hand, the non-manufacturing indicator stood at 35.5 units, with a drop equivalent to 3.2 points, ranking in the contraction zone for the third consecutive month and at its lowest level on record.

Inside, three of the four components of the indicator showed contractions. It should be noted that, during the Great Recession, the minimum for the non-manufacturing indicator was 43.92 points, making it evident that the impact of the current recession is much greater than that observed between 2008 and 2009.

United States

Donald Trump’s risk of threats to the November presidential election has also resurfaced.

Over the weekend, Trump sent the message that he could implement new tariffs against China in retaliation for the coronavirus pandemic and indicated that «phase one» of the trade deal could be reversed.

During the session, he commented that in Mexico the coronavirus problem is serious, adding that it is therefore important to keep an eye on the border and the construction of the wall.

It cannot be ruled out that in the coming months Trump may redirect his attacks towards China and Mexico, to distract attention from the coronavirus crisis in the United States.

China

On the other hand, the People’s Bank of China (BPC), extended its pilot test to 5 more territories as part of the FinTech Development Plan, with which the country plans to be the world leader in the technological application in the financial sector. Previously it had started in Beijing and now starting in May, the program extended to Shanghai, Chongqing, Shenzen, Hangzhou, Suzhou and Hebei.

The intention is to replace part of China’s monetary base, with the digital currency (e-RMB) but not the country’s money supply, so there will be no inflationary pressures derived from this.

As part of the program, the government will begin to pay some officials half of their salaries in digital currency, it will also be used in specific businesses.

It should be noted, there have been no official statements of its use in stock trading. For its part, the government has indicated that in the future a change to the digital currency could offer an alternative to the dollar payment system and mitigate the impact of any threat or exclusion, whether at the country or company level.

It could also help reduce political disturbances in global currency markets. China’s digital currency does not pose a risk to the US dollar.

Other currencies

In the session, the exchange rate touched a minimum of 24.1123 pesos and a maximum of 24.8881 pesos. The euro-peso reached a minimum of 26.2803 and a maximum of 27.2660 pesos per euro in the interbank prices for sale. For its part, the euro touched a minimum of 1.0896 and a maximum of 1.0986 dollars per euro.

At the close, the interbank prices for sale were 24.1191 pesos per dollar, 1.2441 dollars per pound and 1.0902 dollars per euro.

Gabriela Siller; PhD

Director of Economic-Financial Analysis.

Banco BASE