Hey people,
As you may probably know, the peso is currently trading at 16.24/USD. I'm not an FX trader, or any sort of trader, for that matter, but I am intrigued by what causes the peso to be shorted. I understand the MXN is considered highly liquid for an Emerging Market currency, but what direct relation does it have with the EUR to make investors sell the peso. People in Mexico always blame the government, but not sure that's the exact reason. I just think it's kind of interesting and would like to learn more about the logic behind this. I know this may sound like a dumb question, but then again, I've never had any exposure to the FX market.
Why does a ccy have to have a direct relation with the Euro for investors to want to sell it? Your question doesn't make a lot of sense...
The EUR is weak, the peso is being hedged, thus, driving it lower. More explicitly, how does this strategy work and what is the logic behind it...
Peso is being hedged how? What strategy are you referring to?
Thats exactly what i want to know.
From FT: http://www.ft.com/cms/s/3/884616c0-2008-11e5-ab0f-6bb9974f25d0.html#ixz…
“The effect [of Greece] on the peso has been stronger than on other emerging market currencies because the peso is used as a hedging instrument in the region because it is more liquid,” he said."
Ah, so this is referring to the general risk on/off tone that the mkt used to take on when Greece was going right/wrong.
All they seem to be saying (I can't read the whole article) is that MXN is the most liquid ccy in the region. It also happens to be an EM ccy, which means that punters would sell it as a quick and easy way of obtaining "risk off" exposure.
I can't read the article either, but I am pretty sure Martinghoul is right about the gist. Mexico trades nearly like a developed market in terms of liquidity, whereas you have many countries in Latin/South America which are rather illiquid. Let's say you had exposure to Venezuela or Colombia, which are regionally close and oil producing, if you were worried about more systemic EM/Credit/Commodity concerns, perhaps as a cheap proxy hedge you Sell MXN instead of VEF or COP due to the smaller transaction costs and you'd expect there would be a relatively high correlation.
To be honest, this says nothing about correlation with the Euro though. During the peak concerns, the Euro was sometimes appreciating, sometimes depreciating against the USD for example, it was not consistent. In fact, when the Greece fears abated, the Euro ended up lower within a day or so.
MXN has been weakening for the past year because its growth has been slowing due to structural (no productivity gains due to lack of investment; weak demographics), cyclical (UE is now through NAIRU and labor mkt not really adding new jobs), and external (oil, china, greece, US, Brazil) factors. USDEM is in general on the wrong side of the investment cycle, and corporates that have FX denominated debt are effectively short gamma and have to refi before the fed hikes and people assume USD takes off (mex has about 20% of GDP of this, mostly in USD). Its accelerated recently due to oil, "el chapo" and the failed auctions, both of which undermine Pena Nieto's reelection odds and reduce the odds of them hitting their FDI targets (though this point is probably overdone). Finally all the real money investors that bought into the 2013 reforms are finally getting washed out.
Mex is super interesting right now for macro, a lot in play here.
No reelections in Mexico---against the constitution. But good point, I think after this presidency, either PAN or PRD will go into power. PRD winning majority or winning the presidency would probably deal a blow to the MX equity markets, especially soon after elections.
Lot of play in MX for sure. If I could only get some stake in companies building nat. gas pipeline infrastructure in mexico.....
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