Mexican peso futures trading up 24% on CME

Mexican peso futures trading at CME Group surged 24% in 2012, with an average daily turnover of $1.7 billion in notional value, the Chicago-based exchange reported on January 18.

"Mexican peso was one of the more exciting foreign exchange trades in 2012, gaining about 8% against the US dollar and among global currencies becoming one of the most heavily traded "emerging majors", says Craig LaVeille, executive director, FX products, at the exchange in Chicago.

The peso's rally continued into early 2013, as the currency hit its strongest point against the dollar in 10 months to reach MXN12.5686 on January 17, following positive US jobs and housing data.

"All of this reflects growing international investor confidence in Mexico's economic and political outlook," says LaVeille. "Within a backdrop of stable politics, conservative fiscal policies and steady economic growth with reduced inflation, Mexico's high-yielding government bonds are seen as very good value."

The bullish case is not without risk, however, as the peso has historically had a tight correlation with the volatility index (VIX) and is seen as very sensitive to "risk-on/risk-off" sentiment, he says. Its links to the US market, LaVeille adds, also leaves it vulnerable to shocks from its northern neighbour.