The Mexican peso is on a tear and, now, even Elon Musk is on its side.
(Bloomberg) — The Mexican peso is on a tear and, now, even Elon Musk is on its side.
The currency reached its strongest level in nearly five years on Tesla Inc.’s decision to build an assembly plant in the northern part of the country. Even before the deal was made public, the peso was soaring: its 7.7% advance versus the greenback this year has beaten the 15 other major currencies tracked by Bloomberg.
Tesla’s multibillion-dollar investment underscores the Latin American nation as a destination for factories looking to relocate from other far-flung countries — a trend called nearshoring, according to Bank of America economist Carlos Capistran.
“The Tesla announcement is a confirmation that nearshoring is indeed a lifetime opportunity for Mexico,” he said. The currency jumped as much as 1.3% to 18.0706 per dollar before ending Wednesday near 18.11.
Musk’s company will invest around $5 billion in the project, Deputy Foreign Minister Martha Delgado said in a video posted late Tuesday. Mexico’s President Andres Manuel Lopez Obrador said Telsa is looking at further investments in the country, including a battery plant in the state of Hidalgo near a new airport, a key infrastructure project for his administration.
Since Banxico’s bigger-than-expected hike last month that took borrowing costs to 11%, the peso has rallied 3.7%, as major peers were dragged down by global risk aversion. Banxico Governor Victoria Rodriguez said Wednesday that core inflation is not yet decidedly falling, backing expectations of even more rate hikes.
Also aiding the peso’s rally, remittances rose 12.5% in January compared to the previous year, central bank data showed.
UBS expects the Mexican peso to reach the 18-per-dollar mark by the middle of the year, Alejo Czerwonko, chief investment officer for emerging markets Americas wrote in a note Tuesday.
Gabriela Siller, an economist at Mexican brokerage Base, was even more optimistic, saying in a Tweet the peso could make a break for the 17.90 level in the short term following its recent gains.
Still, the peso may have risen too far, too fast, according to Capistran, who warns the currency could be poised for a selloff.
“We see many factors supporting the Mexican peso, but worry that the long position is crowded and that our models show some overvaluation already,” he said.
–With assistance from Cyntia Barrera Diaz and Maya Averbuch.
(Updates prices throughout, adds context starting in fifth paragraph.)
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