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 rose to its strongest in nearly five years after Tesla Inc.’s decision to build an assembly plant in the northern part of the country. Even before the deal the peso was soaring, its 7.8% gain versus the greenback this year has beaten the 15 other major currencies tracked by Bloomberg.
Tesla’s plan 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 Wednesday.
Musk’s company will invest around $5 billion in the project, Deputy Foreign Minister Martha Delgado said in a video posted late Tuesday.
Since Banxico’s bigger-than-expected hike last month that took borrowing costs to 11%, the peso has rallied 3.6%, as major peers were dragged down by global risk aversion.
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.
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