RIO DE JANEIRO: The Mexican peso outperformed its Latin American peers in 2013 as investors anticipated the region's second-largest economy will benefit from key structural reforms at home and a steady economic recovery in the United States, its top trading partner.
Even as other Latin American currencies weakened about 10 percent so far this year, the peso on Monday was on track to close the year with losses of only 1.6 percent.
By contrast, the Brazilian real slid over 13 percent in 2013 as worry about the deterioration of Brazil's economic fundamentals amplified the negative impact of the US Federal Reserve's decision to start cutting back on stimulus.
Anxiety about the timing of the Fed's move was the largest drag on Latin American currencies this year. With the US central bank poised to start winding down its $85 billion-a-month bond-buying program by an initial $10 billion in January, market attention has shifted to the pace of future stimulus cuts.
With less dollar liquidity in global markets and US Treasuries yields expected to rise, investors will likely differentiate between improving and deteriorating emerging market economies next year, analysts say.
MEXICO TO KEEP OUTPERFORMING
The Mexican peso is poised to continue outperforming peers as the government enacts energy reform recently approved by lawmakers to open the country's state-run energy sector to private investment.
"We like Mexico's fundamental story and we're looking to take advantage of its seasonal behavior at year-end," Citi analyst Eduardo Becerra wrote in a note to clients, noting that the peso has rallied considerably in the beginning of the past five years.
The peso was virtually unchanged on Monday at 13.0525 per dollar while the Brazilian real weakened 0.7 percent to 2.3560 per dollar.
Also weighing on the real next year will be the central bank's decision to halve its forex intervention program, which analysts say has greatly cushioned the depreciation of the Brazilian currency in 2013.
Both the real and the Mexican peso will trade on Tuesday but volumes are expected to be extremely thin with no meaningful impact on the exchange rate. In Brazil, the BM&FBovespa forex clearing, which accounts for most of the real's trading volumes, will be shut for the New Year's holiday.
Other Latin American currencies had their last trading day of the year on Monday.
The Chilean peso dropped 0.4 percent on Monday to 526.10 per dollar, closing the year with losses of 9 percent. The Colombian peso and and the Peruvian sol also posted losses of nearly 9 percent in 2013.
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