An Analyst Met Clients In North America, And All Of Them Had The Same favourite Currency

Recently, it’s become clear that the Mexican peso is very hot in currency trading circles.

The chart below shows the weekly Commitment of Traders report, which takes a look at long and short positions across currencies.

The green line denotes the net change in positioning, indicating strong flows into long-peso positions as of late:

Mexican peso net positions commitment of traders

Photo: Bloomberg, Business Insider

In a note to clients today, Societe Generale currency strategist Sebastian Galy says the love for the peso is still alive and well, and if anything, long-term policies announced recently by the Federal Reserve and ECB have made this something of a norm for investors.

Galy writes:

Can’t fight, won’t fight the Fed – If there as a ‘favourite currency’ amongst the investors I spoke with in North America, it was the Mexican peso. And the favourite theme was ‘where can I get yield?’ This is a continuation of the ‘don’t fight the Fed/ECB’ view of life.

There are two main drivers of all of the peso interest at the moment:

  • Valuation. Investors think the peso is cheap, even in light of all of the recent interest. Nomura’s Jens Nordvig and Jim O’Neill have both recommended trades involving selling other currencies and buying the peso.
  • Fundamentals. Mexico is defying the global slowdown to an extent, unlike most other countries. David Rosenberg has said that if there is one country that seems to have “decoupled” from the latest bout of global economic weakness, “it’s Mexico.”

We took a bigger look at the peso trade a few weeks ago. Read the full story here >

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