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Mexican Peso ($MXN) Marches Relentlessly Against US Dollar
The Dollar rallies of 2022 are subsiding and the foundations of Petro-Dollar supremacy are cracking, but January 2023 shows signs that the Dollar's final demise may be as imminent as it is inevitable--it's losing ground against the Peso Nuevo of our hardworking southern neighbor.
Two years into Bidenomics, the US Dollar has been in a paradoxical dreamland. Every American winced at the gas pump and grocery register, but home markets were insanely bullish and the Dollar skyrocketed internationally against foreign currencies. Two factors have sustained the illusion of strength even as workers know their Dollar buys less and less: 1. The Federal Reserve has feverishly thrown every lever to temporarily buoy the Dollar (including vast QE and government "borrowing", which is really money-printing) and 2. Enormous offshore Dollar holdings are being exchanged for hard assets within the USA. The holders know those Dollars will be worthless soon, and are desperate to buy precious metals, stocks, commodities, or real estate, whatever the price.
Under Trump, the Dollar gained real strength, fueled by lower taxation and industrial infrastructure returning to the USA. In March, 2020, this author reported that the Peso was in real trouble and the exchange rate was 24 per Dollar. Mexican President AMLO had come to power from Leftist roots and was locked in a bitter feud with Trump. AMLO eventually proved to be a strong nationalist and US security partner, but he initially faced resistance domestically from entrenched swamp creatures and opposition politicians. The Peso was weak from decades of graft, and there was real concern of runaway inflation. It had already begun in Argentina. (In late 2017, the Argentine Peso enjoyed parity with the Mexican Peso, each trading 17 to the US Dollar. Five years later, the Argentine Peso has lost more than 9/10 of its value and trades at 195 per Dollar on the unregulated black market.) AMLO had to navigate treacherous waters to prevent runaway inflation when his government was new and weak and the swamp there was at full strength. Had the Mexican Peso collapsed, AMLO's entire government may have collapsed with it. (Such a collapse can be a good thing if a government is overgrown and topheavy, but it would have been very bad for Mexico and the USA at the time.) Somehow, behind the scenes, the crisis was averted and the Peso stabilized. I suspect that Trump ordered US action to brake the inflating Peso, knowing the collapse of the Mexican government would be a border security nightmare. This, along with Covid response cooperation, set the stage for friendship between AMLO and Trump. In the three years since, the Peso has been constant at 21 per dollar, only vacillating normally and never more than two Pesos either way in a swing. This stability has continued even eleven months into Russia's incursion into the Ukraine and the resulting storms of sanctions. The Russians were locked out of Dollar-based foreign banking and demanded payment in Rubles only for deliveries of petroleum and natural gas. This was the first BOOM of the battering ram against the long-reigning Petro-Dollar. Last week, Saudi Arabia announced openness to settling petroleum transactions in currencies other than the Dollar. This was a thunderous boom against the Petro-Dollar, one that could prove to be its death knell. It happened the same time that FXSTREET reported on the Peso's march against the Dollar. A week later, the Peso has held its value against the Dollar, and FXSTREET opines the adjustment may be permanent, and the Peso's march may continue even further. For once, the US Dollar may be the victim of runaway inflation. Nasdaq reported in December that the Peso had begun to advance against the Dollar even as other world currencies were declining against it. An included forecast predicted (with agreement from Barclays and Wallet Investor) that the Peso would stop around 19 1/2 per dollar. That would have been within the normal fluctuation of the last three years and have meant nothing. The report stated that market forces, interest rates, and investor attractiveness were responsible for the march, completely ignoring the eventual collapse of all fiat currencies and the difference between a production economy (like Mexico) and a consumer/management/trading economy (like the USA at present).
Much of the manufacturing infrastructure that used to be in the USA is now in Mexico, making the Mexican economy a major exporter of those items as well as the oil, agricultural commodities and labor it has exported for decades. Those are indicators of strength that economists sometimes overlook but war planners take very seriously. Currencies failing or being replaced is often an opening overture to war or revolution, and the Dollar is not immortal. BRICS is coming to the Americas and now has taken a curious twist--less than a month into Brazil's communist government, talks began to absorb the failed Peso of their socialist neighbor, Argentina!
Two years into Bidenomics, the US Dollar has been in a paradoxical dreamland. Every American winced at the gas pump and grocery register, but home markets were insanely bullish and the Dollar skyrocketed internationally against foreign currencies. Two factors have sustained the illusion of strength even as workers know their Dollar buys less and less: 1. The Federal Reserve has feverishly thrown every lever to temporarily buoy the Dollar (including vast QE and government "borrowing", which is really money-printing) and 2. Enormous offshore Dollar holdings are being exchanged for hard assets within the USA. The holders know those Dollars will be worthless soon, and are desperate to buy precious metals, stocks, commodities, or real estate, whatever the price.
Under Trump, the Dollar gained real strength, fueled by lower taxation and industrial infrastructure returning to the USA. In March, 2020, this author reported that the Peso was in real trouble and the exchange rate was 24 per Dollar. Mexican President AMLO had come to power from Leftist roots and was locked in a bitter feud with Trump. AMLO eventually proved to be a strong nationalist and US security partner, but he initially faced resistance domestically from entrenched swamp creatures and opposition politicians. The Peso was weak from decades of graft, and there was real concern of runaway inflation. It had already begun in Argentina. (In late 2017, the Argentine Peso enjoyed parity with the Mexican Peso, each trading 17 to the US Dollar. Five years later, the Argentine Peso has lost more than 9/10 of its value and trades at 195 per Dollar on the unregulated black market.) AMLO had to navigate treacherous waters to prevent runaway inflation when his government was new and weak and the swamp there was at full strength. Had the Mexican Peso collapsed, AMLO's entire government may have collapsed with it. (Such a collapse can be a good thing if a government is overgrown and topheavy, but it would have been very bad for Mexico and the USA at the time.) Somehow, behind the scenes, the crisis was averted and the Peso stabilized. I suspect that Trump ordered US action to brake the inflating Peso, knowing the collapse of the Mexican government would be a border security nightmare. This, along with Covid response cooperation, set the stage for friendship between AMLO and Trump. In the three years since, the Peso has been constant at 21 per dollar, only vacillating normally and never more than two Pesos either way in a swing. This stability has continued even eleven months into Russia's incursion into the Ukraine and the resulting storms of sanctions. The Russians were locked out of Dollar-based foreign banking and demanded payment in Rubles only for deliveries of petroleum and natural gas. This was the first BOOM of the battering ram against the long-reigning Petro-Dollar. Last week, Saudi Arabia announced openness to settling petroleum transactions in currencies other than the Dollar. This was a thunderous boom against the Petro-Dollar, one that could prove to be its death knell. It happened the same time that FXSTREET reported on the Peso's march against the Dollar. A week later, the Peso has held its value against the Dollar, and FXSTREET opines the adjustment may be permanent, and the Peso's march may continue even further. For once, the US Dollar may be the victim of runaway inflation. Nasdaq reported in December that the Peso had begun to advance against the Dollar even as other world currencies were declining against it. An included forecast predicted (with agreement from Barclays and Wallet Investor) that the Peso would stop around 19 1/2 per dollar. That would have been within the normal fluctuation of the last three years and have meant nothing. The report stated that market forces, interest rates, and investor attractiveness were responsible for the march, completely ignoring the eventual collapse of all fiat currencies and the difference between a production economy (like Mexico) and a consumer/management/trading economy (like the USA at present).
Much of the manufacturing infrastructure that used to be in the USA is now in Mexico, making the Mexican economy a major exporter of those items as well as the oil, agricultural commodities and labor it has exported for decades. Those are indicators of strength that economists sometimes overlook but war planners take very seriously. Currencies failing or being replaced is often an opening overture to war or revolution, and the Dollar is not immortal. BRICS is coming to the Americas and now has taken a curious twist--less than a month into Brazil's communist government, talks began to absorb the failed Peso of their socialist neighbor, Argentina!
