In addition to taking a hit from the global financial crisis, the Mexican peso continues to weaken and lose ground to the U.S. Dollar.  This can be devastating to the third world country and exchange traded funds (ETFs) that are influenced by the Mexican currency.
Tom Petruno for The LA Times explains the peso’s decline of nearly 32% since August:

• Fearful investors fled from Mexico and turned to stable economies such as the United States and Japan as soon as the financial crisis hit and credit markets tighten up.
• Mexico’s dependency on the U.S. economy; as the U.S. economy slows down, so does Mexico’s.
• The fading of relatively high interest rates, the Bank of Mexico cut short-term rates from 8.25% to 7.75%.

The Plus Side. On the positive side, the plunge in the peso makes Mexican exports cheaper for U.S. consumers.  However, the Mexican government may be forced to instill a stimulus package to save what is left of their economy, similar to what the developed nations around the globe are doing.

Some ETFs influenced by the decline in the peso are:

• iShares MSCI Mexico Index Fund (EWW): down 19.1% over the last month

• Rydex CurrencyShares Mexico Peso Trust (FXM): down 5.64% over the last month

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

Tags: Currency ETFs, Emerging Markets, EWW, FXM, Latin America, Mexican Peso, Mexico, U.S. Dollar