Mexican Peso Posts Best Quarter Since ‘93 on U.S. Growth

Mexico’s peso posted its best quarter on record as the currency benefits from an improving outlook for the U.S. economy, the chief destination for the Latin American country’s exports.

The peso surged 8.8 percent this quarter to 12.8107 per U.S. dollar as of 3 p.m. in Mexico City, erasing most of last year’s 11.4 percent slide and outperforming all other major currencies. It declined 0.1 percent today. The quarterly advance is the most since the government reset the peso in 1993.

With stronger growth in the U.S. economy, “it seems like Mexico is in a sweet spot” as the peso outperforms emerging-market peers, said Flavia Cattan-Naslausky, a local markets strategist at RBS Securities Inc. in Stamford, Connecticut. Consumer spending in the U.S., which buys 80 percent of Mexico’s exports, rose in February by the most in seven months, Commerce Department figures showed today.

“For that greater alignment with the U.S., Mexico stands to benefit the most and to outperform emerging markets in the context of a stronger dollar,” Cattan-Naslausky said in a telephone interview. “One of the reasons that the currency is performing well is that Mexico remains balanced in terms of inflation growth.”

Mexico’s central bank directors were unanimous in their decision announced March 16 to keep the benchmark interest rate unchanged at a record-low 4.5 percent, according to the minutes of the meeting published today. A majority of the five members of the board of policy makers said inflationary risks in Mexico have declined, according to the minutes.

Mexican Inflation

Annual inflation eased to 3.87 percent last month after breaching the 4 percent upper limit of the central bank’s target range in January.

Most of the central bank board members agreed that “if current favorable conditions in the inflation outlook are consolidated, it may be advisable to adjust to the downside the reference interest rate,” according to the minutes.

The minutes show that a majority of the members “would like to cut rates, but the conditions are not there yet,” Pedro Tuesta, a Washington-based Latin America economist at 4Cast Inc, said by phone. An appreciation of the peso to 12 per U.S. dollar or an additional round of economic stimulus from U.S. policy makers will likely prompt Banco de Mexico to lower rates, Tuesta said.

U.S. consumer confidence rose to a one-year high in March while jobless claims fell to the lowest since February 2008, helping fuel demand for Mexican goods that lifted its exports to a record in the first two months of the year.

Economic Growth

The expansion in the world’s biggest economy will quicken to 2.2 percent this year from 1.7 percent in 2011, according to the median estimate of 72 analysts surveyed by Bloomberg. Mexico’s economy may grow as much as 4 percent after expanding 3.9 percent in 2011, Banco de Mexico Governor Agustin Carstens said March 23 during an interview in Mexico City.

Yields on Mexican inflation-linked peso bonds maturing in December 2013 fell the most in three weeks, dropping three basis points to 1.71 percent, according to data compiled by Bloomberg.

The securities tied to consumer-price increases may be rallying as investors bet that a cut in the reference rate could lead to faster inflation in the future, according to Tuesta.

The yield on peso-denominated debt due in 2024 fell two basis points, or 0.02 percentage point, to 6.47 percent, according to data compiled by Bloomberg. The price rose 0.24 centavo to 130.53 centavos per peso.