(Recasts to focus on demand, peso reaction, adds background)
By Michael O'Boyle and Anthony Esposito
MEXICO CITY, March 6 Demand was double the
availability of $1 billion in hedge contracts Mexico's central
bank offered for the first time on Monday, but the auction
failed to provide support for the peso.
Last month the bank said it would sell up to $20 billion of
a new hedge instrument to tame volatility that has battered
At Monday's auction, the central bank placed $200 million
each in maturities of 30, 60, 101 and 178-days and $100 million
each in 283 and 360-day maturities.
Juan Carlos Alderete, a strategist at Banorte in Mexico
City, said the instruments, which are like non-deliverable
forward contracts that pay in pesos, would help provide
liquidity in longer maturities than were available in the
"This is important in the context of providing stability to
this part of the market. But definitely we do not believe that
this is going to be a game changer," he said, referring to the
contracts' ability to curb peso volatility.
The Mexican currency weakened 0.6 percent to
19.611, in line with other Latin American currencies, as the
U.S. dollar strengthened on concerns that an anti-European Union
candidate may be elected France's next president.
Earlier in the session, it firmed as much as 0.3 percent to
19.435 per dollar, its strongest level since the day after
Donald Trump's surprise victory in the Nov. 8 U.S. presidential
The peso has rallied since hitting a historic low on Jan. 11
above 22 per dollar, making it the top performing major currency
so far this year. It surged last Friday after U.S. Commerce
Secretary Wilbur Ross said a sensible trade deal with Mexico
would help the peso.
Mexico's program so far is much smaller than a similar swap
auction program in Brazil, where the central bank intervenes
"It is just a cushion during the transition to the new
equilibrium for the peso," said Benito Berber, an analyst at
Nomura in New York, who doubted Mexico's program would go beyond
the announced $20 billion.
Marco Oviedo, an economist at Barclays, said the more
favourable mood around trade meant he doubted the peso would
return to levels around 21 per dollar in the coming months.
But he said that further gains could be limited until there
is more clarity on what could happen in U.S.-Mexico talks to
renegotiate the North American Free Trade Agreement, which also
(Reporting by Michael O'Boyle and Anthony Esposito; Editing by
Paul Simao and Andrew Hay)