It was a rough April for Mexico’s peso, but there’s a seasonal pattern coming that some traders say could lift it out of this blues for a moment: the Mother’s Day rally.
The peso USDMXN, +1.0510% fell 3% versus a broadly stronger U.S. dollar in April, when the ICE U.S. dollar index DXY, -0.18% which tracks the U.S. unit against six major rivals, logged its strongest month since November 2016. One dollar last bought 19.4931 pesos, up from 19.2666 late Wednesday in New York. In the year-to-date, however, the peso is still up nearly 2.5% on its U.S. rival.
The Mexican currency has a lose correlation with the celebration of Mother’s Day, which takes place on May 10 in Mexico, three days ahead of this year’s U.S. holiday. This might allow the peso to regain its footing next week.
“Even though the evidence is a little anecdotal, this does have market implications,” said Michael Diaz, head of FX at Xe.com, an online foreign exchange platform.
The reason for the potential strength is an increase in remittances from the U.S. to Mexico, as workers send money home for the holiday, Diaz said.
Mexico’s central bank records remittances sent from abroad. Looking at data since 2010, the trend holds in most years, with May seeing the highest number of remittances. In 2017, 2015 and 2014, it didn’t hold up, but still left May in the top two or three months in terms of remittances received.
Western Union said it typically sees an increase in money transfers ahead of Mother’s Day holidays in countries, such a Mexico, that celebrate one.
In 11 of the last 18 years through 2017, the peso strengthened against the dollar in the five days leading up to Mother's Day, according to WSJ Market Data Group.
For the whole of May, however, the trend is less consistent. Out of the 11 stronger pre-Mother’s Day periods, only five saw the peso appreciate against the dollar on the month, the data shows. Last year, for example, the peso gained 0.4% in the run-up to Mother’s Day, and 1.5% on the month.
But on average the peso is more or less unchanged in the five days leading up to the maternal holiday, looking at the period since 2000. The monthly average over the same period is a 1.2% drop against the dollar.
That might be because Mexico’s peso is a popular emerging market proxy, which besides its own idiosyncratic characteristics and drivers, also responds to large trends in emerging markets as an asset class.
Beyond Mother’s Day, there are also some idiosyncratic issues Mexico is facing, such as its presidential election on July 1 and the renegotiation of the North American Free Trade Agreement.
“I don’t think the market is fully pricing a win by Andres Manuel Lopez Obrador,” said Diaz, referring to the front-runner for the election, who is widely known by his initials, AMLO.
He’s the former mayor of Mexico City and a newcomer to the national stage. He’s also solidly left-leaning, and last week stated that he would stop awarding private oil contracts and halt the privatization of the electricity sector.
The Mexican currency has also been shaken by plentiful and sometimes conflicting headlines surrounding trade tariffs and the renegotiation of the North American Free Trade Agreement, or Nafta. U.S. President Donald Trump repeatedly tied the success of Nafta talks to restricting immigration from Mexico. Still other government officials have indicated that a deal in principle would likely be reached in May.
But even if a May deal is agreed, the implementation of a so-called Nafta 2.0 would take months, meaning both a newly elected Mexican government and a newly elected U.S. Congress, following the November midterms, would need to approve any agreement.
Read: Here’s what traders forget as headlines suggest imminent Nafta deal
“Congress definitely doesn’t realize that this will end up on their desks again after the midterms,” said Diaz. But “if no May agreement is reached, the peso will come under some real pressure.”
Still, irrespective of the risks that lie ahead, the peso still offered “a great carry trade and people still get involved in it,” he said.
In a traditional carry trade, investors buy a currency to take advantage of higher yielding local assets or higher interest rates. Mexico’s overnight interest rate is 7.5%.
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