The good news in Q2 is that the external balance has shot back to surplus, helping support the currency in the near term. This is due to a combination of (i) continued weak demand and recessionary conditions at home, dampening imports, and (ii) a massive surge in primary resource exports headed to China.

The bad news is that macro stabilization is a question mark once again. Contrary to expectations, money and credit growth has not decelerated further in Q2. It is now stuck in the 35% y/y range with a renewed jump in sequential quarterly growth - leaving inflation also "stuck" at 35% y/y as well.

Bottom line: Watch the peso. As long as China is buying and local demand is contracting the exchange rate looks well-supported. But with money and price pressures eroding underlying competitiveness, any change in these factors could lead to a sharp renewed sell-off down the road, putting stabilization efforts at risk.