- USD/MXN rises 0.30% on Tuesday amid risk aversion momentum.
- China’s economic problems, fueled by falling imports and exports, weakened the Mexican Peso.
- The upcoming Mexican inflation data on Wednesday could shed some light on the upcoming monetary policy decision by Banco de México.
USD/MXN gained ground on Tuesday as risk aversion triggered outflows from the emerging market currency, one of the biggest gainers against the US dollar (USD) over the year. Poor economic data from China soured sentiment, while the dollar rose. At the time of writing, the USD/MXN is trading at 17.1488, up 0.52%.
Emerging Markets Currency USD/MXN Rebounds on Weak Chinese Economic Data and Strong USD Momentum
Risk aversion is one of the main reasons behind the USD/MXN rally on Tuesday, with investors shifting to the dollar’s safe-haven status after data from China showed exports and imports fell. Given the background, and the deflationary scenario in China, the global economic recovery is about to suffer a deeper slowdown.
On the other hand, the economic agenda of the United States revealed that its trade deficit was reduced in June, as revealed by the US Department of Commerce. Exports stood at $247.5bn, down from $247bn in May, while imports fell to $313bn, from $316.1bn the previous month. Thus, the trade balance stood at $65.5 billion, slightly above the $65 billion estimate, but below the previous reading of $68.3 billion.
US Treasury yields are extending their losses, despite overall dollar strength. The US 10-year bond reference rate stands at 4.022%, with losses of seven basis points, while the Dollar Index (DXY) shows the greenback gaining 0.52%, up to 102,612.
However, in the latest comments from the members of the Fed, a change in trend is observed, from raising rates to keeping them on hold, with the exception of the governor of the Federal Reserve (Fed), Michell Bowman, who affirms that they are necessary more rate hikes.
On the dovish front, Philadelphia Fed President Patrick Harer said the Fed “can leave interest rates where they are.” However, he added, “absent any alarming new data between now and mid-September,” the Fed can be “patient and hold rates steady.” Echoing some of his comments, Atlanta Fed President Raphael Bostic said no further hikes are necessary.
On the Mexican front, a light agenda would keep USD/MXN traders supported by market sentiment and US dollar dynamics. However, this would change on Wednesday, as inflation figures for July would be released. It is expected that the monthly Consumer Price Index (CPI) will be located at 0.9%, while at an annual level it is estimated at 4.79%. On the US front, the release of inflation data for July is highly anticipated by market participants, with estimates remaining unchanged from last month’s data.
USD/MXN Price Analysis: Technical Analysis
From a technical standpoint, the USD/MXN downtrend remains intact until buyers recapture the May 17 daily low at 17.4038, which could pave the way for a test of the EMA. 100 days at 17.5015. Still, USD/MXN buyers should first break out of the 50-day EMA at 17.1347. Conversely, if the USD/MXN falls beyond 17.0000, the year-to-date (YTD) low of 16.6238 could come into play.
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.
