Mexican central bank moves to prop up faltering peso

Mexico's central bank sold dollars for the first time since February after the peso tumbled to a record low amid concern over the U.S. trade policy. The currency rebounded and later pared gains as some traders deemed the intervention as insufficient.

Banxico is intervening to strengthen the Mexican peso, said Juan Rafael Garcia, the central bank's market operation manager. The peso climbed as much as 1.5 percent on Thursday and rose 0.4 percent to 21.3684 per dollar at 11:01 a.m. in New York. Garcia said that the bank is planning to come out with sales during the trading day on Thursday and that the sales are being done directly with banks in New York.

The peso had weakened 3.5 percent in the past two days after news Ford Motor Co. said it was canceling a $1.6 billion plant in Mexico. U.S. President-elect Donald Trump thanked Ford Motor Co. on Twitter for "scrapping a new plant in Mexico and creating 700 new jobs in the U.S," adding "this is just the beginning."

"We stay bearish on MXN at least into Trump's inauguration," Citigroup Inc. strategists including Dirk Willer, Kenneth Lam and Fernando Jorge Diaz said in a note to clients. "But this morning's intervention may undercut the short term momentum for a weaker MXN."

The last time Banxico intervened in currency market was on Feb. 17, when it sold $2 billion directly to banks to shore up the currency hit by a global rout fueled by a plunge in oil prices. That same day the central bank, led by Agustin Carstens, also raised the key interest rate by 50 basis points while the Finance Ministry announced budget cuts.

"This is instructive in terms of how Banxico views the recent price action and arguably sends an important message to markets that Banxico is willing to take measures to support the orderly trading of its currency," Erik Nelson, a currency analyst at Wells Fargo Securities in New York.

Mexican authorities should consider using U.S. dollar swaps as a different intervention tool because these are "not a direct claim on reserves" and offer currency hedging protection, Goldman Sachs Group Inc. Chief Latin America Economist Alberto Ramos said in a note.

Photo: PEDRO PARDO, AFP/Getty Images

Mexican central bank props up peso

Mexico City (AFP) - The Mexican central bank propped up the peso on Thursday, intervening in the foreign exchange market after US automaker Ford's decision to scrap a new factory caused the currency to sink.

The central bank did not reveal the amount of dollars it sold in its first such action since Republican Donald Trump won the US presidential election on November 8.

The bank said in a statement that the move sought to "provide liquidity and mitigate the volatility that has been observed in recent days."

It did not rule out taking similar action again.

After the central bank's announcement, the Mexican currency traded at 21.60 pesos per dollar, up 0.9 percent from the previous day, according to private bank Citibanamex.

But it later lost much of the gain, trading at 21.75 pesos per dollar compared with 21.80 on Wednesday, the bank said.

The peso plunged to record lows after Trump, who takes office on January 20, pledged to upend US trade ties with Mexico and threatened to impose tariffs on companies that ship jobs across the border.

The currency fell more than three percent since Ford announced on Tuesday the cancellation of a $1.6 billion factory in Mexico -- a project that Trump had repeatedly criticized.


Mexico central bank sells $1 billion to prop peso after Trump slump: traders

Mexico's central bank sold dollars in Mexico and New York on Thursday to fight off the peso's nose dive to record lows amid fears U.S. President-elect Donald Trump's protectionist policies could further hammer Latin America's second-biggest economy.

The central bank sold at least $1 billion in U.S. currency in morning trade, four traders told Reuters, asking not to be identified because they were not authorized to speak publicly.

The bank kept the amount confidential.

Mexico's currency commission said in a separate statement that the move was aimed at providing liquidity and combating recent volatility in the peso, adding that it could not rule out further discretionary intervention to support the currency.

The dollar sales mark the bank's first currency intervention since February 2016, when it sold $2 billion to prop up the sinking peso. The peso depreciated 20 percent last year alone and was among the world's worst performing currencies.

Banco Base said in a report following the intervention that the decision was aimed at combating "speculative positions" that had built up against the peso.

Mexico's peso MXN=MXN=D2 strengthened after the intervention was reported, but trade was choppy and it pared gains to trade flat around 21.48 per dollar after Trump threatened Toyota Motor Corp (7203.T) with a "big border tax" if it followed through on plans to build a new factory in Mexico to build cars for the U.S. market.

The peso posted a record low at 21.624 per dollar on Wednesday after minutes from the U.S. Federal Reserve's Dec. 13-14 meeting hinted that faster rate hikes could be needed under Trump.

Historically the impact of Mexico's currency interventions have tended to be short-lived, and the peso has continued to trend lower.

Juan Garcia, director of national operations for the central bank, confirmed the surprise sales and said they would continue through the day, but he declined to specify volumes.

Prior to the February intervention, the Banco de Mexico had sold dollars in rules-based auctions since a deep slump in the peso in 2014. The February dollar sales were a major policy shift and marked the first time the bank opted for direct dollar sales since the 2009 financial crisis.

On Tuesday, the peso was rocked by Ford Motor Co's (F.N) decision to cancel a planned $1.6 billion investment in central Mexico.

Also, a major fuel price hike that took effect on Jan. 1 has stirred inflation fears and provoked numerous protests and some looting. President Enrique Pena Nieto on Wednesday defended the hike.

The currency fall continued on Wednesday and was compounded by the Fed's minutes showing policymakers were concerned that quicker economic growth under Trump could require faster interest-rate increases in the United States.

Trump's election win drove the Mexican currency steadily lower, with the sell-off fueled by his threats to scrap a trade deal between Mexico and the United States, and to levy punitive tariffs on Mexican-made goods.

On the campaign trail, Trump threatened to halt money transfers from Mexican nationals in the United States unless the country agreed to pay for the massive wall he has vowed to build on the U.S. southern border to keep out illegal immigrants.

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