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An employee displays a 10-peso coin for a photograph at the Mexican Mint, also known as Casa de Moneda, in 2011. (Susana Gonzalez/Bloomberg)
An employee displays a 10-peso coin for a photograph at the Mexican Mint, also known as Casa de Moneda, in 2011. (Susana Gonzalez/Bloomberg)

CURRENCIES

Hedge-fund bulls breathe new life into the peso – the year's hottest currency Add to ...

The world’s best currency rally this year is finding fresh support from hedge funds.

Leveraged investors turned net bullish on Mexico’s peso for the first time since Donald Trump all but locked up his bid to become the Republican party’s nominee in May, according to the latest data from the U.S. Commodity Futures Trading Commission. It’s a turnaround from when bearish positions reached a record in October amid speculation Mr. Trump’s pledges to support U.S. manufacturing would be a disaster for Mexico’s export-dependent economy.

Investors have made the peso the world’s best performer this year, sending it up 11 per cent against the U.S. dollar, after it plunged to record lows in the aftermath of Mr. Trump’s victory. The rally was driven by the idea that the sell-off had been too sharp given the lack of clarity about Mr. Trump’s exact trade policies as well as friendly comments from U.S. officials. Citigroup Inc. strategist Dirk Willer had said in a note last month that the currency would probably underperform in coming months without fresh inflows from hedge funds.

“The Trump agenda is no longer as frightening as it once was,” said David Tawil, co-founder of Maglan Capital in New York.

Mr. Tawil says that the administration will probably be tied up defending itself from allegations that it was complicit with Russian interference in the 2016 election and is less likely to focus on measures that would sharply curtail Mexican exports to the United States.

“It is becoming even more likely that the administration will have to spend time and resources on explaining and defending that episode, further diminishing its political capital necessary for reforming the relationship with Mexico and [the North American free trade agreement],” said Mr. Tawil, who added that his firm was making a bet on Mexican equities.

Hedge funds were net long 8,361 contracts in the week ended March 28, according to the CFTC data. That compared with a bearish position of almost 100,000 contracts in October.

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