Courtesy of Mish.
Currencies of commodity exporter and oil producing countries have been under continual attack. The Mexican peso is the latest to feel the heat.
Mexican Peso vs. US Dollar
Peso at Two-Year Low
The Mexican Peso declined from 9.85-Per-US$ to 15.59-Per-US$ during the great financial crisis (a loss of about 37%) as oil prices plunged. Since then, the peso recovered much of that loss.
Recently, and also in conjunction with declining oil prices, the Mexican Peso declined from 12.02-Per-US$ to 14.39-Per-US$, a decline of roughly 16%.
In response, Mexico Announced Currency Intervention as Peso Weakens to Two-Year Low.
Mexico’s central bank revived an intervention program designed to curb foreign-exchange volatility after the peso fell to a two-year low.
Policy makers will auction $200 million on days when the peso weakens at least 1.5 percent from the previous close, the central bank said today in a statement. A similar measure to support the local currency was put in place in November 2011 and was used just three times before ending in April last year.
The peso, which pared today’s losses after the announcement, is still down 10 percent over the past six months on concern that a drop in oil prices will damp investment in the country’s energy industry. The new program to support the peso surprised investors including Juan Carlos Alderete, a currency strategist at Grupo Financiero Banorte SAB in Mexico City, after Finance Minister Luis Videgaray said last week that he didn’t see a need for intervention.
“I don’t think it will be necessary to actually use the measure,” Alderete said in a telephone interview. “It’s more of a preventative one based on high market volatility.”
Bazooka Theory Revisited
Apparently Alderete is a believer in the Paulson’s Bazooka Theory:…
