Top Mexican Peso Forecaster Says the Key Is in the Chinese Yuan

  • Barclays' Andres Jaime leads ranking of peso forecasters
  • Mexican peso is among currencies most-correlated to yuan

The economist who most accurately predicted the price of the Mexican peso in the last quarter says the markets are overlooking one important driver for the Latin American currency: the Chinese yuan.

Strategist Andres Jaime started covering the peso for Barclays Plc last May and now tops Bloomberg’s ranking of forecasters. He expects the peso to depreciate 7 percent by the end of this year to 18.50 per dollar as oil remains near its current low and the Chinese economy slows. Barclays forecasts the Asian country will expand 6.2 percent in 2016, compared with a 6.9 percent expansion registered last year.

The yuan will weaken 8 percent to trade at 7 per dollar by the end of the year according to Barclays. That in turn will drive down the Mexican peso, the most-traded emerging market currency in the world, Jaime said.

“When I talk to people about this, it seems to me that it’s something they don’t see so clearly, but it’s definitely something important to me,” Jaime said in a telephone interview from New York. “Not only is China Mexico’s biggest competitor in the manufacturing sector but the renminbi has been dictating sentiment globally for over a year now. The peso remains highly correlated with emerging market risk, which gives the renminbi additional importance."

With $135 billion in daily trading, the peso’s high liquidity and accessible trading hours make it a favorite for traders to use as a hedge against risk from other emerging economies. That makes it vulnerable to swings when investors flee riskier assets. Central bank and finance ministry officials announced measures in February to stop speculators from using the peso as a hedging tool.

The Mexican peso fell 0.9 percent on Monday, trading at 17.4639 per dollar at 11:03 a.m. in New York. Since August 2014, when emerging-market currencies began to see losses driven by a plunge in commodity prices, the peso has been the third most-correlated currency with the offshore yuan after the Singaporean and the Australian dollars, according to Bloomberg data.

The median forecast of economists surveyed by Bloomberg is that the peso will weaken 0.3 percent to 17.5 per dollar at the end of the fourth quarter. According to data compiled by Bloomberg, Morgan Stanley has the most bearish call on the peso and sees it trading at 19.40 pesos per dollar by the end of the year. Standard Chartered Plc, at the other extreme, expects it to strengthen to 15 pesos per dollar by the end of 2016.

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