Mexican Peso Rallies on Infrastructure Plan, Eased Fed ConcernBen Bain
Mexico’s peso climbed to a one-month high as a U.S. retail slowdown eased concern that the Federal Reserve will curtail stimulus and President Enrique Pena Nieto announced a $315 billion infrastructure plan.
The currency appreciated 1.2 percent to 12.6672 per U.S. dollar at 4 p.m. in Mexico City, the strongest closing level since June 13. The peso extended its advance this year to 1.5 percent, the only gain among 16 major dollar counterparts tracked by Bloomberg. Yields on benchmark peso bonds due in 2024 rose one basis point, or 0.01 percentage point, to 5.77 percent.
“The more weak data that comes out, the market is going to speculate that the stimulus will last a little longer,” Ramon Cordova, a trader at Banco Base SA in San Pedro Garza Garcia, Mexico, said in a telephone interview. “It helps high-yielding currencies like the peso.”
The peso has gained 1.8 percent since July 10, when Fed Chairman Ben S. Bernanke said the U.S. needs “highly accommodative monetary policy for the foreseeable future.” Mexico’s currency tumbled 2.6 percent on June 19, when Bernanke said the U.S. central bank may begin to slow its $85 billion in monthly bond purchases this year and end them in 2014 if economic growth meets policy makers’ goals.
The peso also advanced today as Pena Nieto said in Mexico City that the infrastructure plan includes investment by the government and private companies in energy and about $100 billion in communications and transportation projects such as new ports and rail lines.
Shares of Empresas ICA SAB, the nation’s biggest construction company, and Industrias CH SAB, Mexico’s largest steelmaker, rallied after the announcement.
“It should be very good for the peso, very good for the stock market,” Luis Estrada, the head of currency and derivatives trading at Banco Ve Por Mas SA in Mexico City. “This will help Mexican businesses, especially those in construction.”
Mexico’s policy makers held the target lending rate at a record low 4 percent on July 12, saying in their statement that keeping it unchanged was appropriate as they measure the risks of a prolonged economic deceleration and new inflationary pressures. The Fed has maintained its benchmark rate at zero to
0.25 percent since December 2008.
U.S. retail sales rose 0.4 percent last month, following a
0.5 percent increase in May that was less than previously estimated, the Commerce Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg was for a 0.8 percent advance. Mexico’s northern neighbor is its biggest trading partner.