Mexican peso weakens amid rising USD, eyes on Sheinbaum’s inauguration

VaselineOctober 1, 2024

0 4 minutes read

Mexican peso weakens amid rising USD, eyes on Sheinbaum’s inauguration

Mexican peso falls as market mood shifts as Iran attacks Israel.
Traders await President-elect Claudia Sheinbaum’s inaugural remarks.
US JOLTS data and Powell’s comments support bullish trend in USD/MXN.

The Mexican peso lost ground against the US dollar on Tuesday as the Mexican Congress began its general session ahead of the swearing-in ceremony of President-elect Claudia Sheinbaum. The exotic pair advance after Middle East headlines suggesting an Iranian missile attack on Israel. USD/MXN is trading at 19.70, up 0.15%.

Wall Street is reflecting a downbeat market sentiment due to heightened geopolitical risks. This triggered flows into the Greenback due to its safe haven status, which was detrimental to the emerging market status of the Peso.

Mexico’s economic record remains absent, with traders awaiting remarks from President Claudia Sheinbaum as she takes office. North of the border, the US program showed its August JOLTS report, which was better than expected and topped the July number.

The Institute for Supply Management (ISM) released September manufacturing PMI, which remained in contractionary territory but was unchanged from August.

On Monday, Federal Reserve (Fed) Chairman Jerome Powell revealed that the central bank is in no rush to lower borrowing costs, while predicting 50 basis points of easing towards the end of 2024.

Given the context, USD/MXN is expected to remain biased after Powell resisted expectations of aggressive Fed easing.

Daily Market Reasons: Mexican Peso Falls on Geopolitical Risks

Mexican political unrest is easing as market participants prepare for the change of president on October 1, a bank holiday in Mexico.
According to swap markets, Banxico is expected to cut borrowing costs by 175 bps by the end of 2025.
The US Labor Department revealed that the August Job Openings and Turnover Survey (JOLTS) rose from 7.711 million to 8.04 million, beating estimates of 7.655 million.
The ISM Manufacturing PMI in September rose to 47.2, unchanged from the previous reading, but missed estimates of 47.5.
Last week, Atlanta Fed President Raphael Bostic commented that he would closely monitor jobs data to gauge the Fed’s policy stance. He indicated he was open to cutting rates by 50 basis points (bps), while admitting he was not yet ready to declare victory over inflation.
Market participants pegged the odds of a 25bps cut at 61.6%. According to the CME FedWatch tool, the odds of a rate cut of more than 50 bps fell to 38.4%.

USD/MXN Technical Analysis: Mexican peso falls as USD/MXN rises above 19.75

The USD/MXN uptrend remains intact and resumed for the fifth straight day as buyers gained momentum. The Relative Strength Index (RSI) shows that the bulls are in charge. This means that the exotic pair could test higher prices in the near term.

If USD/MXN clears the psychological 20.00, the next resistance would be the YTD high of 20.22. Further strength will expose the September 28, 2022 high of 20.57, followed by the 21.00 mark.

Conversely, if USD/MXN breaks below 19.50, the next support would be the September 24 low of 19.23 before the pair heads to the September 18 low of 19.06. Once these levels are exceeded, the 19.00 figure appears as the next line of defense.

Frequently asked questions about the Mexican peso

The Mexican peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the performance of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country, and even the level of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the MXN: for example, nearshoring – or the decision by some firms to relocate production capacity and supply chains closer to their home countries – is also seen as a catalyst for the currency Mexican, as the country is considered a key manufacturing hub on the American continent. Another catalyst for the MXN is oil prices, as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its 3% target, the midpoint in a tolerance band of 2% to 4% ). For this purpose, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus reducing demand and the overall economy. Higher interest rates are generally positive for the Mexican peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the MXN.

Macroeconomic data is essential to assess the state of the economy and can impact the valuation of the Mexican peso (MXN). A strong Mexican economy based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, it can encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this force is associated with increased inflation. However, if economic data is weak, the MXN is likely to depreciate.

As an emerging market currency, the Mexican peso (MXN) tends to struggle during periods of risk, or when investors perceive broader market risks to be low and are therefore willing to commit to investments that carry more risk. great. Conversely, MXN tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable havens.

VaselineOctober 1, 2024

0 4 minutes read

Daily Market Reasons: Mexican Peso Falls on Geopolitical Risks

USD/MXN Technical Analysis: Mexican peso falls as USD/MXN rises above 19.75

Frequently asked questions about the Mexican peso

Vaseline

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