Falling commodity prices and a slowing economy will weaken the Australian dollar as the undervalued Mexican peso climbs, according to Marc Chandler at Brown Brothers Harriman & Co.
“Our trade of the year is to be short the Australian dollar, long the Mexican peso,” Chandler, global head of currency strategy at BBH, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “A lot of the good news from Australia is known in the commodity space, we think a lot of the good news from Asia is known in economic returns, we think what is under-appreciated are the benefits that could come back to Latin America.”
A short position is a bet the value of an asset will decline, while a long position is a wager the value will increase.
The Australian dollar has dropped 2.5 percent since the end of January to $1.0162 as the Standard & Poor’s GSCI Index of 24 commodities declined 5.7 percent in the same period. Australian business profits, from mining to construction companies, dropped in the three months ending in December, the fifth quarterly decline.
The Mexican currency has climbed 0.6 percent this year to 12.7753 pesos per U.S. dollar, after adding 8.4 percent in 2012, as President Enrique Pena Nieto moves ahead with plans to enact fiscal reforms and end the state oil monopoly. The overhaul could increase gross domestic product by as much as 2 percentage points a year, according to the Energy Ministry.
Mexico’s economic expansion has outpaced Brazil’s, the region’s biggest economy, for the past two years. Mexico grew 3.9 percent in 2012, while Brazil expanded 0.9 percent.
“One problem we have right now, the trade is quite crowded in terms of the Mexican peso,” Chandler said. Nevertheless, “the Mexican peso is one of the most undervalued currencies by Organisation for Economic Co-operation and Development measures, and the Australian dollar is one of the most overvalued currencies.”
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