Since the events toward the end of last summer emerging market currencies have been taking an absolute beating. Mexico, Brazil, Hungary, you name it… The Mexican peso (picture to the right since the end of July, 2008) has lost a whopping 45% of its value against the US dollar since it’s lows on August 4, 2008. That’s huge. This is the currency of an entire country we’re talking about here… The Mexican Central Bank has been trying to stem their currency’s devaluation for months now, but as you can also see from the above plot, they haven’t been having much luck. Open advertising of attempts by central banks to manipulate their currency while maintaining certain fiscal and monetary policy targets is often an open invitation for leverage to take them on. I don’t know if that’s what’s been happening here, but it’s definitely in the realm of possibility.
The Central Bank has evidently been snooping around again today prior to their daily auction, but today without even knowing they’re in the market they’re sending a very clear signal that they’re going to attempt to stem the peso’s depreciation any further, at least in the short term. Take a look at the two day intraday plot of the peso below, looks to me like a Central Bank sitting there with a big, fat offer at 14.44, signaling the marketplace that the peso’s going to stay below that level at all costs. This begs the question, however: just how many greenbacks does the Mexican Central Bank have in their coffers to continue this kind of behavior? Maybe it’s time for a trip to Cabo…
