USD/MXN Crosses 100 DMA as Risk Aversion Drives Dollar Gains

• The USD/MXN pair gained 0.88% to trade at 17.3270 after the Bank of Mexico cut its currency hedging program, adding volatility to the currency pair.
• Driven by disappointing China and Eurozone PMIs, risk aversion drives investors towards the dollar and boosts Treasury yields.
• Upcoming data from the US ISM Non-Manufacturing PMI and S&P Global Services PMI data could weigh on the dollar and the Federal Reserve’s interest rate decisions, as the readings are expected to show a slight slowdown.

He Mexican Peso (MXN) extended its fall for four consecutive days against the US dollar (USD) after the Bank of Mexico (Banxico) decided to cut its foreign exchange hedging program, designed to stabilize currency fluctuations that could trigger volatility in the USD/MXN pair. This, along with risk aversion, hurts the EM currency as the pair trades at 17.3270 and gains 0.88% at time of writing.

The Mexican Peso falls for the fourth day in a row amid global economic concerns and rising US Treasury yields.

Risk aversion due to the latest PMI results from China and the Eurozone (EU) worsened the global economic outlook. Therefore, safety-seeking traders flock to the dollar, while US Treasury yields rise.

China revealed that its Caixin services PMI expanded at a rate below estimates from 53.6 to 51.8 and below the previous month’s reading of 54.1. Meanwhile, US data showed Factory Orders fell -2.1% less than market expectations for a -2.5% decline after four straight months of increases, the US Commerce Department revealed.

Meanwhile, Fed spokesmen’s crosses boosted the dollar. Fed Governor Christopher Waller said the Fed has room to decide its next interest rate decision, while Cleveland Fed President Loretta Mester said the Fed will not further tighten monetary policy until until inflation reaches 2%, nor will it wait to get there before lowering rates.

Meanwhile, US Treasury yields continue to rise, particularly the 10-year Treasury yield, which has risen six basis points to 4.261%. This upward movement is having a favorable impact on the USD/MXN pair. The Dollar Index (DXY), which measures the evolution of the dollar against six main currencies, has registered a significant advance of 0.61%, reaching 104,794 points. This marks its highest point since March 13, 2023.

Release of the US ISM Non-Manufacturing PMI for August, which is expected to slow slightly from 52.7 to 52.5. Similarly, the S&P Global Services PMI is likely to show a comparable trend, with estimates of 51, up from 52.3 in July. If both readings line up with expectations, this could put pressure on the US dollar. Such results could reinforce the Fed’s September pause and lessen the likelihood of a further interest rate hike in November.

USD/MXN Price Analysis: Technical Perspective

The daily chart shows the pair with a neutral bias, although the USD/MXN exchange rate is above the 100-day moving average (DMA); a daily close above the latter could put in play a challenge of the crucial resistance turned May 17 swing low at 17.4039. Once broken, the pair could approach 18.0000. Downside risks if the pair falls below 17.0000.