The Dollar Has Weakened a Bit Against the Mexican Peso

Source: Q-Roo Paul

Lately, a few of my neighbors have been grumbling about the fact the U.S. dollar has lost some of its value in the last few months. It went from an all-time high of $21.93 pesos per dollar in January, to its current value of around $17.57 pesos per dollar.

That’s a significant decrease in value but it shouldn’t have come as a surprise to anyone who was paying attention and has, at a minimum, a basic understanding of economics.

The U.S. Election

I hate to open old wounds for any readers who are still a little touchy about the last American presidential election – but it’s relevant to this discussion, so I have to bring it up.

Pre-election

While campaigning for president, Donald Trump laid out a plan to bring jobs back from Mexico and to crack down on illegal immigration. If he managed these two things, it would be a huge blow to the Mexican economy.

In case you were unaware of this, money sent from back to Mexico from workers –mostly in the U.S. – is the #1 source of foreign income for Mexico. It even surpasses the income that they make from crude oil exports.

The Pew Research Center estimates that there are approximately 5.6 million unauthorized Mexican immigrants living in the States. I’m sure you can see how a tougher enforcement policy might negatively affect money being sent back to Mexico.

Post-election

As soon as Donald Trump was elected, it caused investors to worry about the economic stability of Mexico and the peso plummeted. It continued to drop over the next couple of months as the world waited to see what would happen. Investors are a skittish group – like a bevy of quail.

For those of us with bank accounts on both sides of the border, we took advantage of this opportunity to exchange dollars for pesos. By the way, those same pesos are worth a lot more nowadays.

Now that pre-election rhetoric is being replaced with facts and deeds, foreign investors are regaining some of their confidence and are investing in Mexico again.

Much of the investment is in the recently privatized Mexican oil industry. In March of this year, a company from Italy announced the discovery of a significant oil reserve in the Gulf of Mexico off the coast of Tabasco. It’s the first oil discovery in Mexico by a private company since 1938.

Intentionally Devaluing the Dollar

There is a current push from President Trump to devalue the dollar in order to be competitive in an international marketplace, increase exports, and bring manufacturing jobs back to the United States. It would be difficult — if not impossible — to achieve those goals if the dollar stays at its current value.

Let’s Wrap This Up

Exchange rates are subject to a wide range of factors and variables, making them virtually impossible to predict with any certainty. Even the professional analysts are constantly revising their forecasts in response to new information. If you look at some of their reports from December, you’ll see they were predicting we would have a 20:1 exchange rate right now. It just goes to show you that no one really knows what will happen.

So what does this mean to American expats? Well, it means that our dollar doesn’t go quite as far as it did a few months ago. That’s the bad news. The good news is that the low cost of living still makes Mexico an attractive place to settle.

As for us, Linda and I are going to watch the exchange rate fluctuate from the comfort of two lounge chairs on the beach.

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About the Author

Q-Roo Paul
Paul Kurtzweil (Q-Roo Paul) is a former lieutenant from the Polk County Sheriff's Office in Florida. During his 25-year career, he received numerous commendations to include two of the agency's top honors: a Meritorious Service Medal and a Medal of Valor. In 2015, Paul retired and moved to Mexico with his wife. He now spends his days enjoying the Riviera Maya and blogging from the beach.

31 Comments on "The Dollar Has Weakened a Bit Against the Mexican Peso"

  1. Hi Paul, I love your posts. I plan on moving to Mexico within a year. Am I able to get a Resident Visa or some document that would allow me to open a bank account before I move there? Thanks a bunch!

    • Some banks will allow you to open an account without a resident visa (bot not most). Check the website for the Mexican Consulate in your area for requirements for a resident visa to see which one fits you best.

  2. You are direct on when it comes to economics MX versus US.. love the post

  3. Well written article as always. Agreed this is also how Trump would be able to make Mexico pay for the wall, everyone seems to think he needs to get the money from the MX government directly, however that is not the case. All he needs to do is tax the money leaving the US and going to relatives in MX.

  4. Stephen Slater | July 14, 2017 at 10:47 am | Reply

    The latest adjustments are a combination of the Peso strengthening and the Dollar weakening. These adjustments run in various directions, pending political and economic factors, as you state Paul. The bottom line, if your income is in dollars, is that the actual cost of your Peso denominated expenses will increase. However, with most things, there are two sides to the coin. If you elect to sell, the USD value of your property is increasing (from the currency adjustment), relative to when and if you convert your Peso proceeds back into USD. It is all about balance. In my opinion, the current adjustment trend is in the best interest of both countries, as the rate is moving back to something closer to reasonable equilibrium.

    On another note, the MXN (Peso) is a very widely traded currency, for a number of reasons. If you are interested in truly understanding its movements, you may want to look into a little more.

    • I always enjoy your well-articulated comments, Stephen.

      These recent political influences made the currency rates fairly easy to predict and we’ve been able to move money at strategic times to make the most of them.

  5. Joel B Short | July 14, 2017 at 10:50 am | Reply

    Are you suggesting that if your planning a Mexican visit in the next year, purchasing your pesos now would make good sense?

    • There are no guarantees, but it looks that way.

      At election time, it was easy to predict that the peso would depreciate quite a bit, so that was a unique opportunity to buy pesos and make a profit. It’s not normally that easy to predict.

      • This begs the question of how someone in the USA might reasonably purchase and hold pesos? Bank exchange rates generally aren’t great, and currency exchanges (such as at airports) are generally worse, and in either case one is left holding paper currency that is not generating any return. Any thoughts?

  6. I think it should stay above 16, when it breached that other factors were in play. On the other hand you never know what random event can happen that can dramatically change the story. Prices in MX have started to shift towards the 20 as the baseline I think so will gravitate there eventually.

  7. As always a great read. I so appreciate you taking the time to share with us all of your helpful and insightful information. I love that it is articulated in such a skillful manner. I always look forward to reading your posts. Many thanks.

  8. Hi Paul, I’m told it’s not uncommon for the peso to the dollar to be lower in the summer and higher in the winter when tourist season is over. Of course it remains to be seen. But just a couple years ago it was 9 pesos to the dollar so 17.50 is still a great deal for those of us who want to retire there.

    • Yes, there are several factors that affect the rate but I agree that the rate is still pretty good.

      My only concern is that the U.S. will be working to intentionally lower the value of the dollar. That’s not good news for us expats 🙂

  9. Good Morning, How do I get a resident visa and keep it maintained?

    • I’m going to do a post on that coming up. Until then, check the Mexican Consulate’s website and search for “visa”.

  10. Sherry in Texas | July 14, 2017 at 12:36 pm | Reply

    We have been to Mexico when the rate was 8! When we bought our condo in Cancun it was 11. You just have to live with the ups and downs…But thank goodness it doesn’t seem likely that it will go down that low anytime in the next decade or two.

  11. victoria kellman | July 14, 2017 at 1:08 pm | Reply

    thank you for your informative and interesting columns…yeah, i knew the when and why of the strengthening peso…but, it still hurts…i expect that by dec we will be 15.75…ouch

  12. Pamela Bruno | July 14, 2017 at 2:52 pm | Reply

    Well said, Paul! Life here in Riviera Maya continues to be great (and far superior to the old life back in the USA), in spite of the fact that converting USD to MX pesos in June cost about 15% more than it did in January. Like many, I plan to make regular trips to the ATM to convert USD to MX in the near future, expecting that the USD will continue to decline, at least in the near term.
    BTW, most everyone here agrees it is a good idea to keep at least some safety-net cash (pesos) in your safe at home. I sure was glad I had done that when my primary ATM/debit card was hacked, and I had to live on cash for a couple of weeks.

  13. i remember when the norm was 12.00 and was loving it…

    • The Banorte report is from March. The funny thing is that this report changed dramatically from the report they gave a few months earlier at the end of 2016.

      This just goes to show you that even the professionals aren’t that good at predicting the future and that’s why they are constantly reevaluating their opinion.

      I hope that the estimates are correct that the dollar will settle around a 19:1 exchange rate, but that would mean that the U.S. has been unsuccessful at devaluing their currency.

      It’s impossible to know exactly what the future exchange rate will be because the value of both currencies is affected by so many variables: the actions of the FED, 2018 Mexican presidential election,…etc.

      One of the reasons that I never got into currency trading as a hobby, was because it was a bit to volatile for me. Very rarely is there an event that can cause a guaranteed result, like we saw with the U.S. presidential election. In November, I told my wife that we would wait until around January to move money to Mexico. Ray Charles could have seen that that was a win-win…and of course, it was.

      My only prediction is that the financial analysts will continue to change their predictions on a fairly regular basis…lol.

  14. When we arrived in Nov. 2015 the rate was 16, so we are still feeling good. Especially since the bulk of our savings is on 401(k) and we’ve seen ~6% increase there since January. Of course those gains might not last but we sure feel blessed right now.

  15. I have accounts with international investment firm UBS and am in escrow on Mexican land I will build on in the next year. So I contacted their currency forecasting division to get their projections for the peso valuation versus the dollar. My question was “should are transfer all the building proceeds into pesos now?” Their answer was “no.” For the next year they project the exchange rate will fluctuate between 17-18 pesos per dollar. That bit of research and 25 cents won’t buy you a cup of coffee but I wanted to share it, for what it is worth to the reader.

  16. Another great blog. In response to a reply up above…when I first came to Mexico I was getting about 2 1/2 pesos for my Canadian dollar. Got up one morning and the rate was almost 5 to 1. That was when NAFTA was signed…peso devalued overnight. Getting 12 or 13 now (16 last January) is great!

  17. Seems everyone is overlooking the role of the Mexican Central Bank. In January they became concerned and started firing USD into the pot. I believe they had 127B worth of dollars. When you see sharp drops in the peso rate, I attribute that more to the Central Bank defending the peso, much more than what Trump is saying. If I am right, I shall side with the folks that see the peso rate rising as the CB runs lower on bullets.

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