Mexican Peso Weakens on Fed Official's Comments; Stocks Gain

 
   


By Anthony Harrup 
 

        MEXICO CITY--Mexico's peso closed weaker against the dollar Tuesday after the president of the Federal Reserve Bank of Atlanta, Dennis Lockhart, said economic data would have to worsen significantly for him to lean against a first U.S. interest-rate increase in September.
        The peso was quoted closing in Mexico City at MXN16.2790 to the dollar, according to Infosel, compared with MXN16.1750 on Monday.
        The Bank of Mexico sold $200 million at its daily auction at an average exchange rate of MXN16.1493 to the dollar, but the subsequent slide in the peso came short of triggering an auction for an additional $200 million. The peso has to be 1% weaker from the previous session at the time of the auction for additional dollar sales to occur.
        Mr. Lockhart said in an interview with the Wall Street Journal that he sees the U.S. economy ready for interest rates to start rising next month. The comments come ahead of Friday's July employment report, which if positive could further fuel expectations of a rate increase since the Fed has said it's looking for further labor market improvement to start monetary tightening.
        The Bank of Mexico, which is widely expected to start raising interest rates when the Fed does, last week kept its overnight lending rate target unchanged at 3%, but stepped up the level of its interventions in the exchange market.
        RBC Capital Markets recommended selling pesos for dollars, with a target of MXN17 to the dollar and a stop-loss of MXN15.90 if the currency moves in the opposite direction. RBC said it doesn't expect the increased central bank dollar sales to keep the peso from weakening because of low oil prices, the use of the peso as a "cheap hedge" for exposure to other Latin American risk, and its expectation that local inflation will start to speed up.
        Mexican stocks rose for a third consecutive session, despite weakness in U.S. equities, with the benchmark IPC index closing up 0.6% at 45,178 points, a two-week high.
        America Movil (AMX, AMX.MX) L shares closed up 1.5% at MXN15.99, and retailer Wal-Mart de Mexico (WMMVY, WALMEX.MX) shares rose 0.5% to MXN39.30. Walmex plans to report its sales for August after the close on Wednesday.
        Yields on local government bonds rose in line with U.S. Treasurys following Mr. Lockhart's comments. The yield on 10-year bonds due 2024 rose five basis points to 6.05%, and on 20-year bonds yields rose three basis points on the day to 6.57%.
        The central bank placed MXN3 billion of the 2034 bonds at a primary auction at 6.56%, which was down 17 basis points from the previous auction. Demand of 3.7 times the amount offered, while robust, was slightly subdued ahead of Friday's U.S. employment report and in the wake of a recent rally in the bonds, Banorte said in a note.
        Write to Anthony Harrup at anthony.harrup@wsj.com
        (END) Dow Jones Newswires

        August 04, 2015 16:48 ET (20:48 GMT)

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