Mexican peso volatility fell to a 17-month low amid optimism that President Enrique Pena Nieto will succeed in pushing through legal changes that boost growth in Latin America’s second-biggest economy.
One-month historical volatility, which measures the magnitude of the peso’s fluctuations over the period, sank to 7.69 percent at 4 p.m. in Mexico City, the lowest since July 2011, according to data compiled by Bloomberg. The peso appreciated 0.6 percent today to 12.7334 per U.S. dollar.
Investor optimism is growing that Pena Nieto will make good on pledges to push through legislation to end state-owned Petroleos Mexicanos’s energy monopoly and lift tax revenue. Pena Nieto, who led the country’s most-populous state to an investment-grade credit rating during his tenure as governor of the State of Mexico, proposed a balanced budget for his first year in office on Dec. 7.
He “is starting off on the right foot,” Roberto Galvan, a currency trader at Intercam Casa de Bolsa SA in Mexico City, said in a phone interview.
Although Mexico has a law requiring balanced budgets, the country hasn’t passed one since 2009. The zero-deficit plan doesn’t include investment in the state-owned oil company.
Galvan said that peso volatility has also been falling as investors speculate that U.S. leaders are making progress toward a budget deal that would avert a recession in the Latin American country’s biggest-trading partner.
Lower volatility reduces the risk of losses for foreign investors seeking dollar-based returns when they buy securities denominated in local currencies.
Yields on peso-denominated bonds due in 2024 increased one basis points to 5.47 percent today, according to data compiled by Bloomberg. The price declined 0.11 centavo to 139.82 centavos per peso.