Goldman Sachs Picks Peso As Top Emerging Market Currency

Goldman Sachs has marked out the Mexican peso as its top emerging market (EM) currency pick “once the dust settles” from the coronavirus pandemic.

Co-Head of Global Foreign Exchange Kamakshya Trivedi and Head of EM Cross-Asset Research Caesar Maasry, along with a team of strategists, identified the peso as the most attractive among “high cyclical beta, high carry longs.” It was closely followed by the South African rand (ZAR) and Russian ruble (RUB).

A currency carry trade is where investors borrow in a high-yielding currency to fund a trade with a low-yielding currency, aiming to capture the difference between the two rates. Cyclical beta is the currency’s sensitivity to the broader economic cycle and market returns.

“The peso remains our top choice in this group: while it appears to have less ‘room to run’ than some other EM high-yielders, this week’s sell-off means that USD/MXN still stands well over 10% higher than its pre-coronacrisis level of roughly 19,” Trivedi and Maasry said in the note.

“From a medium-run perspective, the peso’s combination of currency-supportive macro fundamentals and still-high yields make it an attractive choice.”

The USD/MXN was hovering at around 22.2 on 2020-09-25 (Friday) morning.  Below is the USD/MXN over 1 year period.  We noted the USD/MXN was bottomed around 2020-02-17 at 18.5555 and as Covid-19 Fear started to spread, it hit the high 2020-03-23 at 25.3606, MXN fell by about 36.66%!

2020-09-17, it reached the low 20.851, an appreciation of 17.8% against USD.  Thereafter, it fell to 22.3439, depreciated by 7%.

Reference

CNBC, 2020-09-25, “Goldman Sachs Picks The Emerging Market Currencies to Back when ‘the dust settles'”