Doing the Rounds: MXN Soars as Investors Cheer One and Done Rate Cut

Normally rate cuts are followed by bout of softness in the currency issued by the central bank.  This is especially true for emerging market currencies, whose central banks have much less credibility with foreign investors than say the Fed or the RBA.  But the Mexican Peso, a new investor darling, has bucked this trend, instead surging higher on the back of local rate cut last Friday.  What is the secret to MXN's success?  For starters, a booming export sector excellently positioned to take advantage of the recovery north of the border.  Second, very low national debt levels, under 40 percent of GDP, and a budget that will be in balance by the end of year.  Finally, the Peso still offers excellent real yield;  Mexico finally seems to have achieved a long term trajectory of low and stable inflation.  

Many traders now speculate that fear of a string of cuts had kept the MXN has making new highs this year, with USD/MXN especially well supported at 12.6.  The certainty of a one and done cut has given the Peso new legs to run higher.  I got in at 12.53 and will continue to ride the wave, probably trading around a core position as the current momentum downward slows.  In sum, MXN continues to be an excellent way to "buy American" as Europe muddles along and Asia faces continued uncertainty.