The Mexican Peso faced depreciation against the US Dollar amid political turmoil stemming from the recently approved judicial reform. The uncertainty surrounding these reforms has raised concerns among investors about the rule of law and Mexico’s creditworthiness. Currently, the USD/MXN trades at 19.95, marking an increase of 0.80%.
Despite the positive market sentiment that usually supports the Mexican currency, political factors are hindering the Peso’s progress. The Senate’s passage of a proposal to make constitutional reforms “unchallengeable” has caused apprehension as it limits the judiciary’s ability to oppose lawmakers’ decisions in Congress.
Critics argue that this move could upset the balance of power in Mexico, while proponents maintain that the judiciary is biased and susceptible to corruption. The passing of a judiciary reform in September allowing popular vote elections for judges and magistrates saw two federal judges granting suspensions after citizens contested changes to the Mexican Constitution.
Following a federal judge’s order to lower the publication and remove the decree validating the judicial reform from the official gazette, Mexican President Claudia Sheinbaum declined to comply. This act of defiance raises further concerns about the rule of law and stability in Mexico amid the ongoing political shifts.
In addition to internal political factors, fears of potential US tariffs under a Trump presidency pose a significant threat to the Mexican Peso. Trump has indicated plans to impose tariffs exceeding 200% on cars manufactured and imported from Mexico, adding pressure on the currency’s valuation.
In terms of economic data, US Durable Goods Orders saw a decline in September for the second consecutive month, while core shipments remained down in four of the last five reported months. The University of Michigan Consumer Sentiment for October recorded an improvement above expectations and the previous month’s reading, with inflation expectations revised downward for one year and remaining unchanged for five years.
The ongoing political instability and uncertainty surrounding the recently approved judicial reform in Mexico have led to a mixed inflation report for the first 15 days of October. This development may deter the Bank of Mexico (Banxico) from lowering borrowing costs by 50 basis points at its upcoming meeting on November 14.
Looking at the technical outlook for the USD/MXN pair, the Mexican Peso is on a downward trajectory as buyers push towards the psychological level of 20.00. With momentum favoring buyers and the Relative Strength Index (RSI) showing strength, the path of least resistance appears to be towards the upside.
If buyers breach the 20.00 mark, they could target the weekly peak at 20.09, followed by the year-to-date high at 20.22. Conversely, a move by sellers to reclaim the October 18 low at 19.64 may lead to a challenge to 19.50 and further down to the October 4 low of 19.10.
In conclusion, the Mexican Peso’s depreciation against the US Dollar is a result of political turmoil and economic uncertainties in Mexico. The impact of the recently approved judicial reforms, combined with fears of potential US tariffs, has added pressure on the Peso’s valuation. With ongoing political shifts and economic challenges, the future outlook for the Mexican currency remains uncertain, requiring a cautious approach from investors and policymakers alike.
