Peso Depreciates as Market Ambivalence GrowsBy Cinthya Alaniz Salazar | Thu, 08/19/2021 - 11:46
The Mexican peso depreciated 0.49 percent on Tuesday in the face of surging COVID-19 cases, disappointing global economic performance and political turmoil in Afghanistan. Collectively, these factors stand to jeopardize a presumptive global economic comeback.
According to Banxico, Mexico’s central bank, the exchange rate closed at 20.0250 units, up 0.097 units from Monday, equivalent to a local currency loss of 9.70 cents. The Dollar Index (DXY), which compares the currency against six reference currencies, gained 0.54 percent at closing due to economic and geopolitical risk perception.
On its own, Mexico is approaching infection rates almost as high as the ones observed during the second wave in January, reporting 24,975 new cases in a single day last Thursday. Although death rates remain much lower than those observed during the second wave when more than 400 people were dying of COVID-19 every day, a weak federal initiative has hindered a more robust and effective response. The lack of intragovernmental coordination between the federal, state and local governments has led to an uneven distribution and availability of vaccines.
Globally, countries struggle to contain outbreaks, the World Health Organization (WHO) reported more than half a million new cases and expects 100 million more cases by early next year if poorer nations continue to be ignored. The US, which had helped jumpstart Mexico’s own economy, reported 144,297 new infections yesterday, which paired with slumping domestic retail sales has renewed investor ambivalence, as reflected in slipping stock values.
Additionally, China’s ongoing technology crackdown on more than 30 companies has whipped out more than US$1 trillion in foreign investment. On top of this, the communist government’s private education reform, which banned private tutoring companies from making profits, raising capital or going public, virtually uprooted a US$100 billion industry, which was targeted specifically for its massive inflow of FDI. Understandably, foreign investors are now worried about potential crackdowns in other sectors as the central government widens their scope.
Furthermore, the US’s withdrawal from Afghanistan that let the Taliban take control of the country has also drawn caution from investors. In consideration of these unfolding events, investor uncertainty is understandable and palpable.