Mexican peso falls on political uncertainty despite weak US NFP data

• Mexican peso falls as USD/MXN climbs above 20.00 on mixed US jobs data, hitting a daily high of 20.09 before retreating.
• Expectations for a Fed rate cut remain uncertain, fluctuating between 50 and 25 bps, adding pressure to the Mexican peso.
• Political instability in Mexico, driven by controversial judicial reforms, keeps traders risk-averse.

The Mexican peso depreciated against the US currency on Friday after the US non-farm payrolls (NFP) report spurred volatility in the bond market. Probabilities for the Fed rate have fluctuated between a 50 or 25 basis point cut. This and Mexico’s political uncertainty surrounding the controversial reforms are keeping the peso under pressure. USD/MXN is trading at 20.00, gaining 0.73%.

The U.S. Bureau of Labor Statistics (BLS) revealed that the U.S. economy added fewer jobs than expected, but improved compared to July’s numbers. The same report showed that the unemployment rate, which rose by two-tenths in July, fell in August, relieving the Federal Reserve (Fed) of cutting borrowing costs in an “aggressive” way.

After the data, USD/MXN rose above 20.00 and hit a daily high of 20.09, but retreated as US yields retreated and undermined the greenback.

At the time of writing, the US Dollar Index ( DXY ), which tracks the greenback’s performance against six other currencies, recovered and rose 0.23% to 101.29 after hitting a low of 100.58 .

Meanwhile, in Mexico, the file featured the release of the Citibanamex Expectations survey, a speech by Bank of Mexico Deputy Governor Jonathan Heath and auto industry data. Politics will likely continue to drive USD/MXN price action for the rest of September.

In addition, political uncertainty weighed on the Mexican peso as traders averted risk on the carry involving that currency and bought USD/MXN. Two days ago, the lower house sent a controversial package of bills to the Senate, including changes to the judiciary pushed by President Andres Manuel Lopez Obrador (AMLO).

If the Senate approves the judicial reform, then “it will be passed for approval in 32 local congresses. Once the bill is approved in 17 of these states, the changes to the Mexican Constitution will be made official,” writes FXStreet.

Daily market reasons: Mexican peso shrugs off weak US data, falls on risk aversion

• The September Citibanamex survey showed private economists had forecast the Mexican economy to grow 1.5 percent in $202, down from 1.7 percent.
• In terms of inflation, the survey revealed that the Mexican Consumer Price Index (CPI) in 2024 would end at 4.60%, and next year it will reach 3.8%. Core CPI is forecast to end 2024 at 3.9%, and by 2025 it is expected to decline to 3.71%.
• The survey added that Banxico is expected to cut rates to 10.25% in 2024 and to 8.25% in 2025. The USD/MXN exchange rate is forecast to end 2024 at 19.50 and 2025 at 19.85.
• INEGI revealed that Mexico’s auto exports rose 1.7% year-on-year in August, after falling 2.7% year-on-year in July. Meanwhile, auto production rose 8.3 percent from July’s 2.7 percent.
• US nonfarm payrolls rose by 142,000 in August but missed the 160,000 mark. It should be said that the July numbers were revised down from 114K to 89K.
• The unemployment rate fell from 4.3% to 4.2%, while average hourly earnings rose from 3.6% to 3.8% on the year in August.
• Data from the Chicago Board of Trade (CBOT) suggests the Fed will cut at least 104 basis points this year, up from 103 bps a day ago, according to the December 2024 federal funds rate futures contract.

Technical outlook: Mexican peso softens as USD/MXN hovers around 20.00

Price action since the start of the late May rally suggests that the USD/MXN uptrend will continue. Twice, buyers bought the dip and the momentum is in their favor as shown by the relative strength index (RSI).

The RSI is bullish with an upward slope. Therefore, the path of least resistance is up.

If USD/MXN breaks above 20.00, the next ceiling level would be the YTD high at 20.22. Next, the pair could challenge the daily high of September 28, 2022 at 20.57. If these two levels are surrendered, the next stop would be the swing high at 20.82 on August 2, 2022, before 21:00.

Conversely, if USD/MXN weakens further, the first support would be 19.50. A breach of the latter will expose the August 23 low of 19.02 before giving way to sellers eyeing a test of the 50-day simple moving average (SMA) at 18.65.