By Anthony Harrup
MEXICO CITY--Mexico's peso slid to a new all-time low against the U.S. dollar Wednesday, triggering dollar sales by the country's central bank as the global markets selloff continued and international oil prices reached their lowest level in 12 years.
The peso was quoted in Mexico City at 18.50 to the dollar, according to Infosel, compared with 18.2910 late Tuesday and down 6.9% from the end of last year. The peso fell as far as 18.68 to the dollar during the session.
Local stocks staged an afternoon recovery for the benchmark IPC index to eke out a 0.1% gain to 40,844 points after being down more than 2% earlier. Heavyweights America Movil and Wal-Mart de Mexico, shares of which rose 0.6% and 1.4% respectively, contributed to the pullback.
"We still think that the correction in international stock markets is creating attractive entry points to gradually accumulate positions ... for an investor with a medium- to long-term investment horizon," Banco Santander said in a report.
The drop in oil prices and its impact on the currency has led to talk in Mexico of "20/20"--export crude oil at $20 a barrel and the peso at 20 to the dollar, said Gabriela Siller, head of analysis at Banco Base.
Ms. Siller said the peso selloff appears to be mostly speculative, driven by oil and worries about the Chinese economy, especially as the peso is easily tradable and often used as a hedge for other emerging-market exposure.
"I dare say the exchange rate could reach 20 pesos to the dollar this year, especially in the first quarter," she said.
Mexico's export crude price fell to $20.02 a barrel on Tuesday, and was likely to be below that Wednesday as international benchmarks sank.
The Bank of Mexico sold $400 million at two auctions. The central bank offers $200 million when the peso weakens 1% from the previous session, and an additional $200 million if the depreciation extends to 1.5%.
The foreign-exchange commission, which includes central bank and Finance Ministry officials, is expected to extend the intervention mechanism at the end of the month amid continued volatility.
The dismal start to the year has led a number of economists to lower their 2016 forecasts for the peso.
Citi said it expects the currency will end the year at 18 to the dollar, instead of its previous 16.90. The bank cited "potential volatility around the Fed March hike, a drop in oil prices and worries over the U.S. manufacturing sector," as well as an impact from a weaker Chinese yuan.
Oil prices remain the biggest external shock for Mexico, which is reflected in the exchange rate, Bank of America Merrill Lynch economist Carlos Capistrán said in a report.
"The peso has overshot what we estimate is its fair value at slightly above 16 in response to the external shocks," he said. "We expect the peso to strengthen once some of the external shocks fade as oil prices stabilize, U.S. manufacturing recovers, the Fed's hiking cycle continues at a very gradual pace, and expectations about China's growth and currency stabilize."
Write to Anthony Harrup at [email protected]