Mexico’s peso rebounds as U.S. outlook improves

Reuters A volunteer in front of a picture of Mexican presidential candidate Josefina V�zquez Mota. An extended rebound in the peso could face headwinds around the July election.

LOS ANGELES (MarketWatch) � Mexico�s currency is on a tear, with improving conditions in the U.S. playing a part in the peso�s near-complete rebound from last year�s sharp loss. But the country�s upcoming presidential election may serve as a headwind, analysts say.

The peso�s USDMXN �nearly 9% jump against the U.S. dollar has topped the performance of other Latin American currencies this year, and the peso is the second-best advancer among 21-tracked emerging-market currencies, lagging only behind Hungary�s forint USDHUF �.

/quotes/zigman/4867991/sampled USDMXN 13.2894, -0.0166, -0.1251% U.S. dollar vs. Mexican peso

After an 11.5% slide in 2011, �there�s a little bit of payback,� for the peso, whose home country�s economic fundamentals are stronger than others in the emerging-markets space, said Win Thin, global head of emerging-markets strategy at Brown Brothers Harriman, in a telephone interview.

High-beta currencies representing Turkey, Hungary, and Poland, among other countries, �get sold off a lot because of their weak fundamentals, and Mexico, I think, is sometimes unfairly punished.�

The peso�s recent moves have pushed it through some key technical levels. Earlier this month, it rose above its 200-day moving average around the 12.75 level, propelled higher after the U.S. � Mexico�s largest trading partner � reported a larger-than-expected rise in January payrolls and a decline in the unemployment rate to a three-year low at 8.3%. The U.S. dollar now buys 12.823 pesos.

But the peso�s path to ending the year on higher ground isn�t obstacle-free, with voters preparing to choose who will serve as Mexico�s president for the next six years.

Comeback for the PRI?

While analysts say the peso still has room to run higher, its ride could become a bit bumpier as the July 1 presidential election draws closer. The center-left Institutional Revolutionary Party, or PRI, appears poised to retake the presidency, which it lost in 2000 after 71 years of control.

Recent polls show PRI candidate Enrique Pe�a Nieto with a lead of more than 20 points over economist Josefina V�zquez Mota, the presidential candidate for the conservative and ruling National Action Party, or PAN. But observers say the race could be close, in part as V�zquez Mota � the first woman to be chosen as a presidential candidate for any of Mexico�s three leading political parties � has been chipping away at Pe�a Nieto�s lead.

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Also in the running is Andr�s Manuel L�pez Obrador, a member of the left-leaning Party of the Democratic Revolution, or PRD, who narrowly lost to current President Felipe Calder�n in the 2006 presidential election. Calder�n is unable to run again as Mexico�s constitution limits presidential terms to six years.

For the peso, �I think there may be some jitters as July approaches,� said Thin at BBH. But overall, �the outperformance by Mexico is likely to continue� as it appears investors are comfortable with the possible return of the PRI, and that the policy differences between it and the PAN aren�t greatly significant.

Banxico: Unlikely to intervene

While the shift among political players takes place, Mexico is one of the few countries in Latin America whose officials aren�t currently concerned about the rise of its currency, said Thin in a report to clients. He noted that Mexican officials last year �were quite sanguine� when the peso looked ready to break below the 11.50 level against the dollar.