Mexican peso falls to six-day low on mixed data

• Mexican peso falls for fourth day as USD/MXN recovers from daily low of 19.29.
• Mexico’s economic activity expanded in July, but retail sales contracted for a third straight month, fueling the peso’s weakness.
• The Citibanamex survey shows most economists expect Banxico to cut rates by 25 bps on Thursday, with some forecasting a 50 bps cut.

The Mexican peso extended losses for a fourth straight day against the greenback, erasing earlier gains as traders digested mixed economic data from Mexico, while S&P Global revealed that US trade activity remained solid but fell further down. USD/MXN is trading at 19.45, returning to a daily low of 19.29, gaining 0.21%.

Mexico’s Instituto Nacional de Estadística Geografía e Informatica (INEGI) revealed that economic activity expanded in July, while retail sales contracted for a third straight month but improved from June’s reading.

Mexico’s economic file will release mid-September inflation figures on Tuesday ahead of the Bank of Mexico’s (Banxico) monetary policy decision on Thursday. The Citibanamex Expectations Survey found that 28 out of 36 economists expect an interest rate cut of 25 basis points (bps) by the Mexican central bank. It is worth noting that six of them forecast a cut of 50 bps, and another two project the next cut to November 2024.

Across the border, US Flash PMIs were mixed, with manufacturing activity contracting more deeply, while services continued to support the economy. The Atlanta Fed GDP Now model projects the U.S. economy will grow 2.9 percent in the third quarter and will be updated on Friday after the data is released.

Recently, USD/MXN extended its losses after Fed speakers acknowledged that risks of a weakening labor market have increased. However, they ruled out cutting interest rates at a pace of 50 bps, keeping their options open for the next meetings.

Daily Market Motivators: Mexican peso pulls back as Fed officials push back against aggressive easing cycle

• Mexico’s economic activity expanded in July by 0.6% on the month, up from 0% in June. In the 12 months to July, ur rose 3.8%, crushing expectations of 1.8% and the -0.6% contraction in June.
• Retail sales improved from -0.5% to 0.7% month-on-month. They fell -0.6% from last year, more than estimates of -0.5%, but improved from -3.1%.
• Banxico is expected to cut borrowing costs by 175 bps, according to swap markets.
• The US S&P Global Manufacturing PMI further deteriorated from 47.9 in August to 47.0, below forecasts of 48.5. However, the services PMI expanded to 55.4, above estimates of 55.3 but below the previous month’s 55.7, suggesting the US economy is slowing.
• Regional Fed presidents went through the news. Neel Kashkari of Minneapolis said the Fed remains data-driven, that the 50 bps cut was “the right decision” and predicted the federal funds rate would end at 4.4 percent in 2024.
• The Atlanta Fed’s Raphael Bostic commented that a half-point cut “does not lock in a cadence for future rate cuts,” while adding that risks to the labor market have increased.
• Austan Goolsbee of the Chicago Fed said much more rate cuts are needed next year.

USD/MXN Technical Analysis: Mexican Peso Falls After Weak US PMI Data

USD/MXN is partially bullish. It recovered slightly during the North American session and is set to extend its gains once the psychological figure of 19.50 is breached. Momentum as measured by the Relative Strength Index (RSI) favors buyers after breaking above its neutral line, opening the door for further gains.

USD/MXN’s next resistance will be 19.50, followed by the August 6 high at 19.61. Once cleared, 20.00 will follow, followed by the yearly (YTD) peak at 20.22. Conversely, if USD/MXN extends its losses below the September 23 low of 19.29, it will expose the confluence of the 50-day simple moving average (SMA) and the September 18 low near 19.08 to 19, 06.