Mexican Peso Declines: USD/MXN Recovers from Daily Low
- The Mexican Peso extended its losses against the US Dollar for the fourth consecutive day, rebounding from a daily low of 19.29 to trade at 19.45, marking a 0.21% increase.
- Economic Activity in Mexico expanded in July, while Retail Sales faced a third consecutive month of contraction, contributing to the Peso’s weakness.
- Citibanamex Survey indicates that most economists anticipate a 25-basis-point rate cut by Banxico on Thursday, with some experts forecasting a 50-bps reduction.
Market Insights
Traders reacted to mixed economic data from Mexico, alongside S&P Global’s report on US business activity, which showed solid performance but a slight decline. Here are the key highlights shaping the market:
- INEGI Data: Economic activity in July expanded by 0.6% MoM, surpassing June’s flat growth. Year-on-year growth stood at 3.8%, exceeding expectations and reversing June’s contraction.
- Retail Sales: Showed improvement, rising from -0.5% to 0.7% MoM. However, the YoY figure remained negative at -0.6%, although better than the previous month’s -3.1% decline.
- Banxico Expectations: The central bank is anticipated to cut rates by 25 bps, as indicated by swaps markets projecting a 175-bps reduction.
US Economic Data
On the US front, Flash PMIs revealed a mixed picture, with manufacturing activity contracting further while services continued to support the economy. Additionally:
- Fed Commentary: Various regional Fed presidents shared their views, with Neel Kashkari emphasizing data-dependence, Raphael Bostic highlighting risks to the labor market, and Austan Goolsbee advocating for more rate cuts in the future.
- Atlanta Fed GDP Now: Estimates Q3 growth at 2.9%, with updates expected post data releases on Friday.
Technical Analysis: USD/MXN Outlook
Looking at the technical aspect, the USD/MXN pair shows an upward bias, with resistance levels at 19.50, 19.61, and 20.00. Conversely, support lies at 19.29, 19.08, and 19.06. The Relative Strength Index (RSI) favors buyers, indicating potential further gains.
Banxico FAQs
For those unfamiliar with Banxico, Mexico’s central bank, here are some key points to understand its role in shaping the country’s monetary policy:
- Mission: To maintain low and stable inflation, with a target rate of 3% and a tolerance band of 2-4%.
- Tools: Interest rates play a crucial role in guiding monetary policy, impacting inflation and economic activity.
- Meetings: Banxico convenes eight times a year, often aligning its decisions with the US Federal Reserve’s actions.