Mexico’s Peso Strengthens as U.S. Budget Talks Buoy Export View

Mexico’s peso touched a seven-week high as optimism that U.S. leaders are making progress toward a budget deal that would avert a recession boosted the outlook for the Latin American country’s exports.

The peso appreciated 0.3 percent to 12.8090 per U.S. dollar at 4 p.m. in Mexico City. It earlier reached 12.7842, the strongest intraday level since Oct. 18. The currency has rallied 8.8 percent this year, the best performance among the greenback’s 16 most-traded counterparts.

Mexico’s peso gained the most among major currencies today after President Barack Obama and House Speaker John Boehner met yesterday in an effort to reach a deal that would avoid spending cuts and tax increases set to take effect in January. Representatives for the leaders both issued statements afterward that “the lines of communication remain open.” Mexico sends about 80 percent of its exports to the U.S.

A budget agreement “should lessen the retrenchment in the U.S. economy and reduce uncertainty, which would be good for risk assets in general,” Kenneth Lam, a Latin America currency and rates strategist at Citigroup Inc., said in an e-mailed response to questions. “The peso should be a primary beneficiary due to Mexico’s links to the U.S. and the currency’s sensitivity to risk sentiment.”

Exports from Latin America’s second-biggest economy increased 13 percent in October from the same month a year earlier, Mexico’s national statistics agency said today.

Peso Debt

Yields on peso-denominated bonds due in 2024 were little changed at 5.46 percent today, according to data compiled by Bloomberg. The price declined 0.07 centavo to 139.93 centavos per peso.

Citigroup’s local brokerage known as Accival said today in an e-mailed statement that yields on longer-term, local-currency bonds may decline 20 basis points by the end of the year after new President Enrique Pena Nieto proposed on Dec. 7 a balanced budget for his first year in office. The proposal will “without a doubt have a favorable impact on market expectations,” the brokerage wrote.

Yields on local-currency, fixed-rate bonds maturing in 2042, Mexico’s longest-term peso bonds, have declined 72 basis points in the past six months to 6.55 percent, according to data compiled by Bloomberg. The yield rose three basis points today.

Mexico sold 7 billion pesos of debt maturing in 28 days that it offered at auction, according to a statement posted on the central bank’s website. The country also sold 8 billion pesos of 91-day notes, 9 billion pesos in 182-day securities and 9.5 billion pesos in 336-day debt.

The government also sold at auction 5 billion pesos in local-currency, fixed-rate bonds maturing in 2031 and the equivalent of about 3.2 billion pesos in inflation-linked debt maturing in 2040.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE