Mexico’s ‘Super Peso’ Surprises Traders

The Mexican peso has been a remarkably resilient anomaly amid the carnage in emerging-market currencies this year. A few analysts have started referring to it as the “super peso” because of how well it has performed while nearly all of its competitors have fallen victim to the dollar’s steady ascent.

A tight fiscal policy and rising interest rates that have boosted the carry trade are two fairly typical sources of strength. Expectations for a fundamental shift in world commerce in the years to come, which could result in a rise in foreign direct investment, are yet another important element.

China is losing its competitive advantages to Mexico as a result of rising salaries and rising transportation costs. A trend known as “nearshoring” is forcing businesses to relocate operations from Asia to locations closer to the US, the largest market in the world, as a result of a Covid-induced aversion to lengthy supply chains.

The rigorous closures enforced as part of China’s Covid Zero policy and worries that China would take action against Taiwan that would prompt sanctions from Western nations are two factors that add to the logistical issues.

It marks the start of a change from 20 years ago when China entered the WTO and soon replaced Mexico as the leading manufacturing hub for US businesses.

The gap between Mexico and China in terms of exports to the US is now closing, stunning investors who predicted the peso would be one of the world’s largest losers in 2022 at the end of last year.