USD MNX forex deviation in graphs – by market analysts
USD MXN is a very dynamic pair of foreign exchange. The USD MNX forex pair is a volatile pair, but its volatility has improved since 2018. The volatility so far in 2019 has been stable. With the increased value of the US dollar, the Mexican peso has risen in ranks. The current value of Mexican peso being circa 19.00. However, there are several anticipations as far as the inflation in Mexico is concerned.
Although inflation is steadily decreasing in Mexico, any positive change in the US dollar would directly affect the inflation rate in the country. This year many events that took place in Mexico affected the economy as well as the forex trade. Some major events that are highlighted for causing sudden changes in the graphs are as follows:
Annulment of Texcoco airport construction
As per the last financial currency valuation report from the international economic research group iStrategize Mexico, the cancellation of the airport construction has had a very significant effect on the forex numbers this year and valuation of the Mexican Peso may not be reflecting the real market value. As the project was of utmost importance to the Mexican economy and fundamentally necessary. This project cancellation had a decremental effect on the level of foreign direct investments in Mexico and its perceived attractiveness to international investors.
Its well known by the industry that Mexico’s Benito Juarez Airport (MEX) currently has an oversaturation of operations (flights), iStrategize’s aviation analysis, points out that the combination of factors such as lack of runway separation, the high altitude operations where the airport is located at and the nearby terrain makes the operation of the Airport one of the riskiest in the world. Airspace controllers in Mexico City are cataloged as some of the best in the industry due to the unique and specific challenges that managing such an oversaturated terminal in those conditions represent.
A new airport is desperately needed and the one being built would have solved these problems for good, furthermore the proposal for the alternate Santa Lucia Airport, and old military airbase outside Mexico City does not consider the complexity of the area’s traffic and the constraints of the current terrain, being Altitude a major factor to be reviewed Santa Lucia is not only not a good option but will certainly increase the risk of a Major accident if simultaneously operated with the current Benito Juarez Airport.
The New Airport was being built in an area called Texcoco, a project supervised by the most important Infrastructure Architect in the world, the land on which the new airport was being constructed although not entirely perfect, was outside of the current city grid, this is inherently safer than landing downtown of the largest city in the Continent, ask anyone that landed at night in the Mexico City’s Benito Juarez Airport will tell you, is the landing of a lifetime as you are seemingly landing on top of the nearby buildings.
The location chosen for the New Airport in the Texcoco Lake was far than perfect as it serves as the necessities of the Aztecs in the old Tenochtitlan City, nowadays modern Mexican Aztecs don’t really use the land as it’s a Federal Area, building on top of a dry lake certainly makes things complicated for building but perfect in regards to location, the New Airport was the only area of Mexico City that has somehow remained clear of the City Growth and has a clear chunk of airspace to safely operate at this altitude and with the nearby terrain.
Despite this, the current administration terminated the project and announced a separate plan, but the new plan offered by the administration consultants seems to be an impromptu solution that does not take into account real aviation problems and which has raised many questions in regards to its implementation and the possibility of execution. The current administration plans on decongesting the main airport of Mexico City by building additional runways on the current military airbase of Santa Lucia. Unfortunately, due to the lack of airspace available on the overly congested (MEX) Mexico City Airport makes it a risky proposition that does not take into account how airports are operated, opening such airport will increase the likelihood for a serious accident above the city in which more than 28 Million People call home.
Why would the current administration cancel an airport that was being built with private funds and that was already being used? More than 50% of the airport was already built when the executive order was issued to cancel the project and not a single taxpayer peso was used for its construction, now they plan to use taxpayer money in an unviable plan laid out by consultants that don’t understand aviation safety, no wonder why the market is nervous.
Information provided by some Latin American investment funds made clear precisely that the lack of execution of that project and the way the cancelation was handled by the current Administration ended causing uncertainty on private funds and other projects of that magnitude which are not being funded as of now. This decision that seemingly was not thought through is effectively scaring allot of large investors in other huge projects that the country needed, the funds conclude that not having certainty on large scale projects where the government could simply pull the plug without a clear cause is driving Foreign Direct Investment away.
Resignation of Mexico’s Finance minister
On top of that, Mexico’s Finance minister Carlos Urzua’s resignation from his position made big news in the international market and within the country. The change caused in the charts due to this sudden event was pretty significant. Several analysts have confirmed that the Mexican economy is doomed without Urzua handling the finances. According to Urzua, his reason for the resignation was the extremism in the government and the appointment of impotent people who do not know the public treasury.
Urzua publicly shared his resignation on his twitter account directing it to the Mexican government and stating the reasons for his resignation. This Act of Urzua has caused a sudden rise in the volatility of USD MXN forex. The replacement of such experienced personnel from the core panel of the Mexican government will be difficult but the current Government led by President Obrador is copying with it.
Economics are optimistic towards a positive change which will help the country to grow and develop in the long run even after such minor setbacks. The sole objective of the governing body of Mexico should be on the overall improvement of their economic condition and that can only be achieved with effective planning.
Signing (T-MEC) over NAFTA
The T-MEC is a treaty between Mexico, USA, and Canada which increases the regional automotive industry’s right to free trade. This treaty is supposed to be beneficial for car manufacturers in Mexico. Although there are reasonable risks involved in it. The North American free-trade agreement (NAFTA) is now being dissolved as Mexico becomes the first country to sign the T-MEC treaty. This is beneficial for the Mexican economy as Mexico is host to several automobile manufacturing companies including Audi, Volkswagen, Ford, Honda, Mazda, etc.
Crude oil
Crude oil plays a very important role in the forex rates of USD MXN. The Mexican and American economies depend on crude oil for well-defined reasons. The American scenario for crude oil is a bit different from that of Mexico. Since few of the oil field that is present in the Mexican gulf belongs to Mexico and not to the USA.
As a commodity, the exposure of crude oil for the USD has dropped. And it has been dropping for the past three months. Although research shows signs of crude oil exposure going up, there are speculations as to what effect it would have on the forex of USD MXN.
Since crude oil is crucial to the trading pair of USD MXN, it has a very significant upshot on the Mexican peso.
Market analysts’ say
Market specialists in Mexican Peso such as Doctor Teodoro Lavin Sodi believe that the USD MXN pair is taking the news in a good and dynamic manner although there are underlying risks that need to be covered, the low inflation reported is helping the pair and Mexico remains the top trading partner of the USA.
The implementation of tariffs towards Mexican products may certainly affect the valuation but its effects are yet to be seen. This has been one of the reasons why commercial relations between Mexico and America are getting slower day by day.
Wall Street has a different feeling about Mexican Economics. They believe that the Mexican economy is threatened by such actions prompting a liquidation of positions, although money has not been taken out of the country, is ready to flee thus a clear view on strategy from the current administration is key to avoid havoc.
The History with his northern neighbor
Naturally, the history of the US and Mexico goes long back even before the 1800s. After the withdrawal of Spain, Mexico had an extremely low population density, and the Mexican intellectuals decided to take in people from outside. They accepted people from the US, the ones under slavery and bonded laborers and provided them land and allocation. Mexico had soon become a haven for the black people in the US who found Mexico as a reliable place to settle.
Soon the US and Mexico formed a friendly bond between them. Then during the time of economic stress that fell upon Mexico, during the ‘lost year of Mexico’, they gained some economic support from the US. A year later the bond remained with the signing of NAFTA which improved the relationship of the three neighboring countries the USA, Canada, and Mexico.
These financial relations kept a relative understanding and a real implementation of NAFTA rules was engaged between the two countries. But then as the situation worsened in Mexico the relationship was pressured, this was the result of four main causes Economic conditions, illegal immigration, drug wars, and mass violence. The issue started with the illegal production and the consumption of drugs, earlier president Fox insisted on the US and Mexico allowing some drugs to be legal which will defacto terminate the violence associated with its production and the costs of policing the border between Mexico and the United States of America.
The issues related to cocaine and Marijuana traffic still to this day causes turmoil between both governments. However, both are trying to resolve this unrest in the best way possible by fighting together against the practices of drug traffickers. The government of the United States keeps a keen eye on the immigrants that cross the US-Mexico border and also tracks down the dealers and the users of these illegal substances within the country. The operations conducted by both parties against the malpractices of illegal immigration, drug wars, and mass violence will help the economy of both neighbors to grow in the long run and not hold back the true potential of Mexico as a nation to dominate the global market.
Mexico and the USA have always been good neighbors which historically have depended one on the other, it’s definitely worth exploring expanding the NAFTA agreements to the point they can really become a homogeneous block, in reality, all the world sees Mexico Canada and the United States as one single commercial entity, merging the three countries in unrestrictive commerce practices as the original NAFTA proposed may make the three countries much more powerful than the Eurozone.
