Mexican Peso appreciates Banxico member’s solicited comments

• The Mexican peso gains ground on Wednesday, boosted by comments from Banxico’s deputy governor.
• Jonathan Heath has been calling for higher rates for some time, regardless of the recession.
• President Sheinbaum has pledged to be fiscally responsible.

The Mexican peso rose for a second straight day against the U.S. dollar on Wednesday following dovish comments from Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who voted against cutting interest rates by 25 basis points at the policy meeting currency from September 26. USD/MXN is trading at 19.37, down 1.18%.

Heath appeared on Banorte’s podcast and said policy should remain at current levels for “a while longer,” while acknowledging that core inflation is approaching target. He added that the US Federal Reserve’s (Fed) interest rate cut will not have a direct impact on Banxico’s policy and he does not believe Mexico is close to a recession.

Mexico’s record showed business confidence deteriorated in September, while July’s gross fixed investment figures improved in monthly and annual terms.

In addition, President Claudia Sheinbaum began her six-year term. In her inaugural speech, she assured investors that their investments were safe and added that she would respect Banxico’s autonomy to dictate its policies.

Sheinbaum promised fiscal responsibility and defended the judicial reform approved in September. According to analysts and foreign investors, this reform threatens the rule of law, and this sentiment has hurt the peso in recent months.

“Disciplined management of the budget and state-owned enterprises, progress in public security and protecting the integrity of key institutions will be essential to maintaining market sentiment and sovereign debt ratings,” said Alberto Ramos, head of Goldman Sachs Latin America Economic Research. team.

In the US, ADP National Employment Change data for September beat estimates after five months of weak readings.

Daily Market Reasons: Mexican Peso Ignores Mixed Data to Advance

• Business confidence in Mexico rose to 51.9 in September, down from August’s 53.1, the lowest reading since January 2023.
• Gross fixed investment rose 1.8% month-on-month in July, up from a -1% contraction in the previous month. In the 12 months to July, it bounced back from a 1.3% contraction and climbed 6.4%.
• Mexico’s business activity in the manufacturing sector contracted, according to S&P Global. The September manufacturing PMI fell from 48.50 to 47.30, highlighting the ongoing economic slowdown.
• The ADP change in Employment in September was 143,000, up from 103,000, revised upward the previous month, and beating forecasts of 120,000.
• According to swap markets, Banxico is expected to cut borrowing costs by 175 bps by the end of 2025.
• Market participants pegged a 25 bps cut at 63.8%. According to the CME FedWatch tool, the odds of a rate cut of more than 50 bps fell to 36.2%.

Technical Analysis: Mexican peso rises as USD/MXN dips below 19.40

The USD/MXN uptrend remains in place, but the ongoing pullback would likely test the 50-day simple moving average (SMA) at 19.30. According to the Relative Strength Index (RSI), momentum has turned negative.

The RSI is falling below its neutral line and indicates that the sellers are in charge.

If USD/MXN clears the 50-day SMA, the next support would be the September 24 low of 19.23 before the pair heads to the September 18 daily low of 19.06. Once these levels are exceeded, the 19.00 figure appears as the next line of defense.

On the other hand, if USD/MXN breaks above 19.50, this could sponsor a test of the current week’s top at 19.82. Going forward, the next resistance will be the psychological figure of 20.00, followed by the YTD high of 20.22.