The Mexican Peso faced losses against the US Dollar for the second consecutive day, but has shown some signs of recovery. The USD/MXN pair dropped from around 19.98 following the release of the US Institute for Supply Management (ISM) Manufacturing PMI report. Currently, the USD/MXN is trading at 19.85, with a 0.30% increase at the time of writing.
The political unrest in Mexico is weighing heavily on the Mexican Peso as Congress prepares to vote on a controversial judicial reform. This reform has garnered criticism from foreign governments, Mexican court workers, and multinational companies, who believe it could threaten democracy and potentially allow criminal organizations to infiltrate the court system.
It is anticipated that Morena’s supermajority in the Chamber of Deputies will approve the bill, but they lack the majority in the Senate to modify the Constitution. A judge has issued a stay to halt discussions on the proposal, leading to strikes in the judicial sector and strained relations with the United States, causing uncertainty in local markets.
Fitch Ratings previously stated that this reform could negatively impact Mexico’s investment climate. Additionally, President Andres Manuel Lopez Obrador has pushed for bills to eliminate autonomous bodies like the antitrust regulator and Transparency Institute.
On the economic front, Mexico’s Unemployment Rate increased in July, reflecting ongoing economic weaknesses as reported by the National Statistics Agency (INEGI).
Market Analysis: Mexican Peso Declines as Economic Indicators Signal Slowdown
- The Unemployment Rate in Mexico rose to 2.9% in July, slightly higher than the previous month’s 2.8%. Seasonally-adjusted figures showed a steady Jobless Rate at 2.7%.
- Recent data in Mexico revealed an improvement in Business Confidence, while S&P Global Manufacturing PMI indicated a decline in business activity.
- Most banks predict that the Bank of Mexico (Banxico) will cut rates by at least 50 basis points for the rest of 2024, potentially impacting the Mexican Peso’s value, which has already depreciated by 15.38% year-to-date.
- The US ISM Manufacturing PMI for August was below expectations at 47.2, but showed an improvement from July’s data. The Employment sub-component index also increased from 43.4 to 46.0.
- Forecasts for US Nonfarm Payrolls in August suggest growth from 114K to 163K, with a decrease in the Unemployment Rate from 4.3% to 4.2%.
- Data from the Chicago Board of Trade (CBOT) indicates expectations for a significant rate cut by the Federal Reserve in December 2024.
Technical Analysis: Mexican Peso Weakens as USD/MXN Surpasses 19.80
The USD/MXN pair is showing an upward bias, consolidating around the 19.50-20.00 range. The Relative Strength Index (RSI) suggests bullish momentum, indicating potential further upside for the pair.
If buyers push the USD/MXN above 20.00, key resistance levels to watch out for include the YTD high at 20.22, followed by daily highs from September 28, 2022, at 20.57 and August 2, 2022, at 20.82. On the downside, initial support lies at 19.50, with further support at the 50-day Simple Moving Average (SMA) at 18.65.
Mexican Peso FAQs
1. The Mexican Peso’s value is influenced by various factors such as the country’s economic performance, central bank policy, foreign investment levels, and geopolitical trends.
2. The main objective of Mexico’s central bank is to maintain low and stable inflation levels by adjusting interest rates accordingly.
3. Macroeconomic data releases play a crucial role in assessing the economy’s health and can impact the Mexican Peso’s valuation.
4. The Mexican Peso tends to perform well during periods of low market risk and struggles during times of economic uncertainty.
Overall, the political turmoil and economic indicators in Mexico are contributing to the Mexican Peso’s volatility and could have implications for investors and individuals with financial interests in the region.