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Goldman Sachs sees peso extending rally to 17 per dollar

Don’t let the Mexican peso’s blistering 15.3 per cent rise against the dollar so far this year put you off. Analysts at Goldman Sachs reckon the rally to this year’s best-performing major currency still has room to go.

The currency, which hit a 14-month high of 17.8090 late last month, is forecast to strengthen another 5 per cent to 17 per dollar over the next 12 months according to the investment bank. The last time the currency was that strong was in December 2015.

The upgrade is the latest from Goldman, which has already raised its view on the peso to 18 from 19 per dollar in March. It also marks the latest chapter in the peso’s remarkable comeback after it slumped to record low of 22.03 to the dollar in mid-January in the wake of Donald Trump’s election victory.

But the peso has been in fight-back mode since then as Mr Trump’s campaign promises to tear up free trade agreements and build a wall on the US-Mexican border have taken a back seat to the thornier issue of healthcare and tax reform. The ongoing investigation into whether members of his campaign team has colluded with Russia has also weakened Mr Trump’s hands. Meanwhile Mexico’s export-driven economy has also proved to be more resilient than expected while successive interest rates rises by the Mexican bank have helped support the peso.

As Goldman noted:

“…For $/MXN in particular, valuations are still supportive, the central bank remains vigilant.”

Goldman is not alone in feeling bullish. Analysts from Nomura to Morgan Stanley have all been busy revising their call on the peso higher as both domestic political risks and concerns over Nafta ease.