Pimco’s Guillermo Osses believes that currency traders are set to bid up the Mexican peso as much as 20% against the dollar during the next year, right after Mexico just had its credit rating downgraded to BBB by Fitch Ratings.
While Mr. Osses appears to be one of the most bullish on the peso, he’s not alone. Economists’ consensus forecast predicts a 3.3% rise against the dollar, according to Bloomberg.
Bloomberg: …investors were “awaiting the downgrade to take positions in Mexico,” Osses said in a telephone interview from Newport Beach, California. “The peso is one of the cheapest currencies in emerging markets. External accounts will improve and the government’s efforts on the fiscal side are reasonable.”
Given the Mexican peso’s horrible performance year to date, a 20% rally wouldn’t be too wild, simply recovering some of the ground it has lost against the U.S. dollar since the middle of 2008. Any large move in the peso would have serious repercussions for manufacturers set up along the U.S./Mexican border, including the many relocated Chinese ones.