The Mexican Peso has faced continued depreciation amidst fears surrounding the judiciary reform proposed by President AMLO. Presumptive President Claudia Sheinbaum supported the reform, advocating for elected judges, causing investors to remain cautious. The USD/MXN traded at 18.44 as a result. However, Sheinbaum reassured investors that Mexico’s economy is strong and there is no cause for concern.
Banxico, Mexico’s central bank, remains vigilant towards currency exchange rate volatility and is prepared to take action to restore order in the markets. Meanwhile, the Federal Reserve’s decision to keep rates unchanged and consumer sentiment data in the US bolstered the USD/MXN to 14-month highs. The UoM survey showed a decline in consumer sentiment attributed to inflation and weakening incomes among Americans.
Looking towards the future, AMLO’s proposals for Supreme Court reform and other changes in the Mexican Constitution could influence Banxico’s decision to ease policy despite a dip in core prices last month. The upcoming economic docket for Mexico includes data on Aggregate Demand, Private Spending, and Retail Sales, but political uncertainty continues to drive the USD/MXN exchange rate.
Morgan Stanley cautioned that an unorthodox agenda adopted by Mexico’s government and Congress could undermine institutions, leading to a further depreciation of the Mexican Peso. The UoM Consumer Sentiment Index for June reflected a decline in sentiment and inflation expectations for the next twelve months and five-year period. The US inflation report increased the probability of a Fed rate cut in September.
In terms of technical analysis, the USD/MXN pair remains upwardly biased despite dropping below 18.50. Sellers need to push the exchange rate below 18.15 to maintain the current range. On the other hand, breaching 18.50 could lead to further upside towards resistance levels of 18.99, 19.23, and potentially 19.50. The Mexican Peso (MXN) is influenced by various factors such as economic performance, central bank policy, foreign investment, remittances, and geopolitical trends.
Banxico aims to maintain low and stable inflation levels by setting interest rates accordingly. Higher interest rates are positive for the Mexican Peso as they attract investors. Macroeconomic data releases play a crucial role in assessing the economy’s health and impact the MXN valuation. A strong economy with high growth and low unemployment is beneficial for MXN. As an emerging-market currency, the Mexican Peso tends to perform well during risk-on periods and weakens during market turbulence or uncertainty.
