- Mexican Peso on the Defensive as Political Unrest Deepens, Ignoring Foreign Investors
- AMLO’s judicial reform bill is currently moving through Mexico’s lower house, awaiting Senate approval amid fierce opposition.
- USD/MXN is trading in a range of 19.67-19.92 with political uncertainty overshadowing the impact of US JOLTS job openings.
The Mexican Peso depreciated against the Dollar on Wednesday during the North American session, as Mexico’s Lower House voted and approved President Andrés Manuel López Obrador’s (AMLO) bill to reform the judicial system. At the time of writing, USD/MXN was trading at 19.85, up more than 0.30%.
Political turmoil in Mexico continued on Wednesday. After more than 17 hours of discussion, the ruling Morena party and its allies approved AMLO’s bill with 357 votes in favor and 130 against. Now it’s the Senate’s turn, where Morena is one vote away from what is needed to approve the bill as part of the Mexican Constitution.
Although foreign governments, Mexican justice system workers and international companies expressed concerns that the reform threatened the rule of law, Mexico’s Chamber of Deputies approved it.
It is important to note that on Tuesday, the US ambassador to Mexico, Ken Salazar, said that the approval of the judicial reform could harm relations between Mexico and the United States.
Despite that, as traders digested the latest US JOLTS job openings report, the USD/MXN remained anchored in the middle of the 19.67-19.92 range. Job openings in July fell to their lowest level in three and a half years, sparking speculation that the US Federal Reserve (Fed) could cut rates by 50 basis points (bps) at the upcoming meeting in September.
According to the CME FedWatch tool, the probability of a 50 bps Fed rate cut is 43%, while that of a quarter-point cut is 57%.
The rest of the week’s economic calendar in the US will include the release of the ADP national employment change, initial jobless claims, S&P and ISM services PMI data, and the Nonfarm Payrolls (NFP) report on Friday.
Daily Market Summary: Mexican Peso on the Defensive in a Sparse Economic Agenda
- Data from Mexico released this week shows the economy is slowing, in part due to higher interest rates set by the Bank of Mexico.
- On Tuesday, the unemployment rate approached the 3% threshold, while business activity in manufacturing sectors contracted.
- The agenda will include Mexican auto industry data on Friday, ahead of inflation data next week.
- Most banks expect the Bank of Mexico (Banxico) to cut rates by at least 50 basis points (bps) for the remainder of 2024. This would put pressure on the Mexican currency, which has already depreciated 17.38% year-to-date (YTD).
- U.S. JOLTS job openings in July fell from a downwardly revised 7.910 million in June to 7.673 million.
- US factory orders for the same period rose sharply from a -3.3% drop on June 5 to 5% growth.
- US Nonfarm Payrolls in August are expected to rise from 114,000 to 163,000, while the unemployment rate is forecast to decline from 4.3% to 4.2%.
- Data from the Chicago Board of Trade (CBOT) suggest the Fed will cut at least 103 basis points this year, up from 96.5 bps yesterday, based on the December 2024 federal funds rate futures contract.
Technical Outlook: Mexican Peso Weakens as USD/MXN Rises Above 19.85
The political development sponsored a rise in the USD/MXN, which retreated somewhat after reaching a weekly high of 19.98. As the judicial reform passed the first hurdle, traders abandoned the Mexican currency and started buying the Dollar.
USD/MXN buyers need to surpass the weekly high before testing the 20.00 figure. A break of the latter will expose the yearly high of 20.22, followed by the daily high of September 28, 2022 at 20.57. If those two levels give way, the next stop would be the high of August 2, 2022 at 20.82, before 21.00.
Conversely, if USD/MXN weakens further, the first support would be 19.50. A break of the latter will expose the August 23 low of 19.02 before giving way to sellers looking to test the 50-day simple moving average (SMA) at 18.65.
Mexican Peso FAQs
The Mexican Peso is the legal currency of Mexico. The MXN is the most traded currency in Latin America and the third most traded currency in the Americas. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its primary objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banking sector, and provides economic and financial advice to the government. Banxico uses the tools and techniques of monetary policy to achieve its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans, which affects their ability to invest and save. In general, inflation affects the Mexican economy because Mexico imports a significant amount of final consumer products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
