The Mexican Peso (MXN) is facing downward pressure as political risk increases due to proposed changes to the constitution, specifically in the judiciary. Critics argue that these reforms could compromise the independence of the judiciary, leading to concerns among investors.
Currently, one US Dollar (USD) buys 19.42 Mexican Pesos, EUR/MXN trades at 21.69, and GBP/MXN at 25.68.
Political Risk Impacting Mexican Peso
The Mexican Peso weakened recently as investors reacted to the newly-approved government’s plans to reform the constitution, particularly in the judiciary’s appointment process. The proposal to make judges elected instead of appointed has raised fears of compromising judicial independence, which could have negative implications for justice and democracy.
These reforms have already influenced investor sentiment, with Morgan Stanley advising against investing in Mexican shares due to the potential increase in risk premiums associated with the judiciary reform.
Tariffs and Monetary Policy Support Peso
Despite the political concerns, the Mexican Peso has found some support from external factors. Canada’s decision to raise tariffs on Chinese electric vehicle and steel imports could benefit Mexico, given its role as an intermediary manufacturer of Chinese EVs for the North American market.
Additionally, comments from Banxico Deputy Governor Galia Borja emphasized that the bank’s recent rate cuts do not signal a shift to a more accommodative policy stance, providing further support for the Peso.
Other factors, such as cooler-than-expected inflation data, weak retail sales, and carry trade flows, have also influenced the currency’s performance.
Technical Analysis: USD/MXN Outlook
USD/MXN is currently consolidating within a rising channel, indicating an overall uptrend that favors long positions. While short-term fluctuations may occur, the general trend points towards a potential move towards channel highs around 20.50.
USD/MXN 4-hour Chart
A break above the 19.53 swing high would confirm the continuation of the upward trend towards the channel highs.
Understanding the Mexican Peso
The Mexican Peso’s value is influenced by various factors, including the country’s economic performance, central bank policies, foreign investment, remittances, geopolitical trends, and oil prices. Changes in interest rates by Banxico can impact the Peso, with higher rates generally strengthening the currency.
Macroeconomic data releases, such as economic growth, unemployment rates, and inflation, also play a significant role in determining the Peso’s valuation. Additionally, the currency tends to perform well during periods of low market risk and weaken during times of economic uncertainty.
Overall, keeping an eye on political developments, economic indicators, and global market trends can help individuals understand and potentially navigate the fluctuations in the Mexican Peso’s value.