Mexico Peso Ends Worst Streak in 7 Months on Intervention Bets

  • Currency edges away from psychological barrier of 20/dollar
  • Peso can drop more if U.S. election race stays tight: Nordea

The Mexican peso ended its longest losing streak since February as traders bet the central bank will step in to stem losses fueled by concern over the outcome of the U.S. presidential race.

The peso strengthened 0.4 percent to 19.7257 per dollar as of 5:23 a.m. in Mexico City, its first advance on a closing basis in seven days. The move is in line with currencies of other commodity producers as oil prices climbed back toward $45 per barrel in New York and the Bank of Japan’s monetary stimulus boosted demand for riskier assets.

Traders are wagering policy makers will intervene to arrest the peso’s slide toward 20 per dollar as U.S. Democratic candidate Hillary Clinton’s lead over Republican Donald Trump narrows in polls. The central bank last sold dollars directly to banks in February, when the peso was touching record lows, and said at the time that it would do so in the future to contain "disorderly" moves in markets.

“As we approach 20 versus the dollar, there will be more and more people speculating about intervention and rate hikes from the central bank,” said Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen. “That kind of speculation will prevent it from breaching that level unless we get some kind of external driver that really spooks the markets.”

Trump Effect

The currency can easily drop further if the U.S. presidential race remains tight, said Svendsen, who expects it to breach 20 per dollar before the vote. Republican candidate Trump has proposed seizing remittances, increasing deportations and leaving the North America Free Trade Agreement, under which Mexico boosted exports sevenfold.

Recent polls have caused the peso to plunge 5 percent this month, more than twice as much as the second-biggest loser among 31 major currencies tracked by Bloomberg.

“It depends how determined the central bank is to prevent it from going higher,” Svendsen said. “They probably know that it’s difficult to fight against these moves.”

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