AZMEX SPECIAL 3 DEC 2016
Note: of local interest mostly.
20-to-1 exchange rate is unsavory threshold
By Paulina Pineda
Nogales International Updated Dec 2, 2016
http://www.nogalesinternational.com/news/to--exchange-rate-is-unsavory-threshold/article_c832f0c6-b82a-11e6-a9f5-1b06e3ff4c96.html
Carlos Covarrubias exchanges money Thursday at the Kayro "casa de cambio" on Mariposa Road in Nogales, where the U.S. dollar was selling for 19.90 Mexican pesos. Thursday's interbank peso-dollar selling rate rose as high as 20.88
Shoppers walk past an exchange house on Grand Avenue in Nogales where the dollar was selling for 19.95 pesos on Thursday.
Richard Cho, owner of Paradise and Baby World on Morley Avenue, said he set the peso-dollar exchange rate at his stores at 18 to remain competetive.
At the Food City grocery store in downtown Nogales, a handful of people were shopping Tuesday morning as store employees stocked shelves and cleaned the floors. Sales have been sluggish of late, said store manager Daniel Zuniga, and he laid a large part of the blame on the weak Mexican peso, whose value is teetering around the psychological barrier of 20 to the dollar.
Though he has yet to set the in-store exchange rate higher than 19.80, if the peso continues to weaken, Zuniga said he might not be able to avoid increasing his rates.
"Are we going to break that?" he asked, referring to the 20-per-dollar mark. "We've never had to. We're trying to hold off as much as we can but I think the second the foot drops, probably come January, we'll try to sustain it, but it might be impossible.
"Twenty is like the glass ceiling," he added. "It's scary."
Donald Trump's victory in the U.S. presidential election Nov. 8 sent the already weak peso plummeting past the 20-per-dollar mark in world currency markets, reaching record lows in the process. Since then, the daily interbank selling rate has ranged between 20.1 and 20.98, according to tracking data on the Bank of Mexico website. On Thursday, the interbank peso-dollar selling rate rose as high as 20.88. A year earlier, it was at 16.54.
But in Nogales, where businesses like Food City depend heavily on customers from Mexico, the peso-dollar rate at many exchange houses and stores has stubbornly remained under 20, with just a few exceptions during the Black Friday weekend.
Economists and business owners say there are a number of factors that keep the peso-dollar exchange rate lower in border communities such as Nogales, including informal and unregulated trading mechanisms. There's also significant anxiety over the psychological impact the 20-to-1 mark could have on shoppers.
Barclays strategist Andres Jaime Martinez, formerly with the Bank of Mexico, said the same pattern can be seen at airports in Mexico. He said because bank rates are regulated and set by the international market, banks will always have higher rates. However, an independent merchant at the airport or border community doesn't have to play by the same rules and can buy and sell pesos at a discount.
Tough time
At the Nogales Walmart, the peso-dollar selling rate was 20.90 on Tuesday, at least a peso higher than at many other outlets in town. Store manager Miguel Garcia said unlike his competitors, his store's exchange rate is dictated by the banking industry.
"Other independents throughout Nogales have the luxury of being able to set it according to whatever they want," he said. "I don't have that luxury."
Despite the higher-than-normal exchange rate, Garcia said, many customers are still using pesos to buy goods. Still, there is a noticeable decline from previous years. He estimated that about 85 percent of his business comes from Mexico and the weak peso has had an impact on sales.
"Customers are really watching their money so a lot of them are purchasing in Mexico," he said. "It's better for the Mexican economy and the Mexican consumer because right now there are more benefits for the Mexican consumer to shop there."
Zuniga, the manager at Food City, said about 40 to 50 percent of his customers come from Mexico and he tries to set the store's exchange rate lower than at the local exchange houses to attract more customers.
"We're local, we cater to our community, and I know it's a tough time right now so we kind of want to absorb as much of that burden as we can – also since we do depend a lot on their trade," he said. "We want them to spend their money here so we try to make it as cheap as possible for them and we try to stretch their peso.
"We were at 18.90, 19.20 as of five days ago, and we've been holding it as much as we can but with that last push here up to 20 we kind of had to change that," he added. "But it seems like we've been changing every three days, which I really don't like only because our prices are everyday low prices and we like to keep that image, so with our money exchange rate we like to keep that steady, too. But unfortunately the bank moves and everybody moves with them."
He said that the lack of customers Tuesday morning was also worrisome.
"Typically we get that slow day after (Thanksgiving) but it hasn't really picked up since then, which is alarming for us because we typically have our regular customers or our regular traffic that comes back after that Friday," he said, adding that he thinks things will only get worse come January.
Fears of closure
Compared to national retailers and larger chain stores like Walmart, the locally owned shops along Morley Avenue and elsewhere in downtown Nogales have more flexibility when setting the rate at which they'll accept pesos.
At the Baby World clothing shop on Morley Avenue, owner Richard Cho said his exchange rate is 18-to-1, not only so he can remain competitive, but also because he understands the struggles his customers face.
"We know the Mexican customer doesn't have the money," Cho said, adding that he relies on those customers to help keep his shop open. "We want to keep it low."
Despite the unfavorable exchange rate, many customers still pay in pesos, he said, joking later that he was waiting for a better rate before exchanging the approximately 200,000 pesos he has stashed away.
The nearby Factory 2-U discount retailer is doing its best to keep up with the locals. The chain store boasted one of the best peso-dollar exchange rates Wednesday afternoon, and while many stores downtown were empty, dozens of shoppers searched for jeans, coats and other outerwear inside the Terrace Avenue storefront.
Assistant store manager Karla Beltran said in the three years she's worked at the store, the current exchange rate of 18, which has held steady for months, is the highest she's ever seen it. She said one reason the store has a more favorable exchange rate than its competitors is because it's one of the first shops border crossers see when they come up Terrace.
"So all the people think, 'Oh it's 18, let's buy right here,'" she said, adding that she didn't foresee the rate increasing come the holidays.
The weak peso has also affected exchange houses on both sides of the border. And though many have tried not to reach the 20-per-dollar mark, some surpassed it after Thanksgiving, only to drop it again after business suffered.
In Nogales, Sonora, about 10 exchange houses have closed because of the increasing value of the dollar against the peso and the lack of business, according to the Sonora-based newspaper Expreso.
In Nogales, Ariz., many of the exchange house owners expressed concern that the weakening peso could also put them out of business.
By mid-afternoon on Wednesday, Zobeyda Coronel said, only one customer had stopped by her shop, Coronel Money Exchange on Grand Avenue near the border, where the peso-dollar exchange rate was 19.95.
Coronel said she set the rate at 20 earlier in the week but quickly lowered it the following day to see if she could attract customers.
"It's been slow all year, but particularly slow in the last month," she said, adding that things are so bad people only buy between $5-20 at a time. "If you were here all day you'd see how slow we are."
Though the shop is her primary source of income, Coronel said, the rent is too high to afford. If things don't turn around by the end of December, she's contemplating closing the exchange house, which she's owned for 15 years.
"I'm walking on a tightrope," she said. "At the end of December we'll see what direction we take."
'Not anymore'
On the street above at Casa de Cambio La Esquina, Efrain Ceron said they also raised the rate to 20 during the Black Friday weekend because there was a greater demand for dollars. However, after the weekend was over they lowered the rate due to a lack of customers. As of Wednesday the peso-dollar exchange rate there was 19.90.
"In December, dollars always sell even though the price is very expensive, but this year business is much lower than in previous years," he said.
Speaking of hitting the 20-per-dollar mark, Ceron said: "It's totally psychological because if you set it at 20, people no longer want it, but if you put it at 19.90 they'll buy it. But 10 Mexican cents is not even half a penny. It's nothing."
However, a few cents does make a difference to shoppers.
Estella Miranda of Magdalena, Sonora, who was looking for school uniforms for her granddaughter on Morley Avenue, said she used to make the trip to Arizona every two months to visit friends and go shopping, but now that the economy is so bad it's not worth it.
"Before one would come to do grocery shopping and things like that, but not anymore. It's not convenient, it's more expensive here than it is there," she said, adding that in addition to the price of goods, shoppers also have to wait in long lines at the border crossing.
Asked if she would keep coming to Nogales if the peso hit the 20-per-dollar mark on the border, Miranda said no, especially now that she's retired.
Fellow shopper Guadalupe Campos of Nogales, Sonora echoed Miranda's sentiments, adding that she bought two blankets for $15 each but everything else was out of her price range.
Martinez, the Barclays analyst, said economists believe that in 2017, the dollar will continue outperforming the Mexican peso as well as currencies of other emerging markets. The peso, however, is projected to stabilize at 21.50.
Though many local merchants said they believe the battered peso will continue to plummet once Trump takes office, Martinez said it's hard to say for sure what type of impact the inauguration will have on exchange rates, especially because the president-elect has already softened his tone on many of the promises made during his campaign, such as imposing stiff tariffs on Mexican goods and deporting millions of illegal immigrants.
"I don't think the policies that Trump promised before getting elected are going to be implemented completely," he said in a phone interview Thursday. "We don't see meaningful tariffs being imposed on Mexican imports but the risk is going to be there. It's going to take a while until we get more clarity on how his policies will affect the peso."
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