Mexican peso falls, Cancun on sale!
Thinking of planning a trip to Cancun or other destinations in Mexico? Now may be the right time. The US dollar is stronger than ever against the Mexican peso. In recent weeks the peso has dropped up to 50% in value against the dollar hitting a 10 year low. Many Mexican companies which had foreign currency-denominated debt got hit by a sudden increase in the value of that debt because they would have to buy dollars using pesos which had lost value. Companies in Mexico and Brazil have lost billions this way on currency derivatives. In response Mexico’s treasury has spent more than 10% of its currency reserves in an attempt to boost the value of the Mexican peso.
And mere days the Mexican peso has dropped from below 10 pesos to one US dollar to above 13, a more than 30 % change. At the same time the Brazilian real went from under 1.6 to 2.2. The economies of both countries will now grow at a pace 1% less than previously expected while having to deal with increased inflation as the price of imports have now increased due to the devaluation of their currencies.
However, this sale on Cancun may not last forever. Goldman Sachs is saying that the Mexican peso, Australian dollar, and the South African brand are among top undervalued currencies and Goldman strategists expect these currencies to go back up. Chilean peso, Norwegian krone and Malaysian ringgit are also on the list of top undervalued currencies which are all at least 20% undervalued.
