- The Mexican Peso reached its highest point in eight days at 17.99 before losing momentum.
- There is not much happening in the economic scene in Mexico this week. We can expect some key data releases such as the May CPI, Consumer Confidence, and the Banxico meeting minutes.
- US Nonfarm Payrolls surpass projections; adjustments to previous months’ data strengthen speculations of potential Federal Reserve intervention.
The Mexican Peso remained relatively unchanged against the US Dollar on Friday, fluctuating between the 17.99 and 18.19 range. The release of varied employment figures in the US led to discussions about the possibility of the Federal Reserve (Fed) reducing interest rates in September. This speculation caused the emerging market currency to surge initially, but later the USD/MXN recovered some of its losses and settled at 18.08. It recorded marginal daily gains of 0.02% and is expected to finish the week with an overall increase of approximately 1.20%.
Wall Street experiences a combination of gains and losses, while the Greenback makes a slight comeback against the Mexican currency. The economic calendar in Mexico is currently devoid of any major events, as traders eagerly await the release of the Consumer Price Index (CPI) for May next week. Additionally, they are keeping a close watch on the upcoming reports on Consumer Confidence and the Bank of Mexico’s (Banxico) latest monetary policy meeting minutes.
The June report on US Nonfarm Payrolls exceeded expectations, but revisions to the figures for April and May led traders to believe that the Fed will likely start its easing cycle in September.
According to the US Bureau of Labor Statistics (BLS), the latest data revealed that Average Hourly Earnings (AHE) remained unchanged on a monthly basis, but experienced a decline over the twelve-month period leading up to June. Additionally, the Unemployment Rate saw an increase.
After the data was made public, US Treasury yields experienced a significant decline. The rate on the 10-year benchmark note dropped by six-and-a-half basis points to 4.284%. This decrease in yields posed a challenge for the US Dollar. Meanwhile, the US Dollar Index, which monitors the dollar’s performance against six currencies, declined by 0.12% but managed to reduce some previous declines and is now hovering around 105.00.
Based on the CME FedWatch Tool, the probability of a rate reduction in September 2024 has increased by 70% compared to the previous day’s likelihood of 66%.
The Mexican Peso Continues to Strengthen as the US Dollar Weakens
- According to Banxico’s survey, economists predict that the Gross Domestic Product (GDP) will decrease to 2% by the end of the year, compared to the previous estimate of 2.1%. Analysts anticipate that Banxico will reduce interest rates from 11.00% to 10.25%, which is slightly higher than the 10.00% forecasted in May.
- According to the Coincident Indicator from the National Statistics Agency (INEGI), a number of analysts in Mexico predict that the economy could experience a deceleration but manage to avoid a recession. However, critics argue that the reforms advocated by President Andres Manuel Lopez Obrador (AMLO), especially the judiciary reform, may have an impact on the nation’s creditworthiness.
- The US Nonfarm Payrolls increased by 206K, surpassing the projected 190K. However, there were downward revisions for April and May, with the numbers being adjusted from 165K to 108K and 272K to 218K, respectively.
- Hourly earnings experienced a slight decline from 4.1% to 3.9% year over year, in line with expectations. Meanwhile, the unemployment rate increased from 4% to 4.1%.
The Mexican Peso Remains Close to Its Lowest Point of the Week, With the USD/MXN Pair Hovering Around 18.10
The USD/MXN experienced a significant decline, reaching its lowest point in eight days at 17.99, only to rebound and approach the 18.10 range due to increased buying interest. The price action on Friday is creating a Doji candle, suggesting that there is currently a stalemate between buyers and sellers. As a result, it is likely that the exotic pair will continue to trade within the range of 18.00-18.10 in the near future.
The momentum is displaying a small rebound as the Relative Strength Index (RSI) has leveled out in a positive zone following three consecutive days of declining readings. This affirms the range-bound trading of USD/MXN.
In order for a bullish continuation to occur, the USD/MXN needs to exceed 18.10 and then rally above the high of June 28th at 18.59. This will allow buyers to potentially challenge the year-to-date high at 18.99. On the other hand, sellers will require a decrease below 18.00, which has the potential to prolong the pair’s downward movement towards the December 5th peak, which has now become a support level at 17.56. This would be followed by the 50-day Simple Moving Average (SMA) at 17.37.
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