The Mexican Peso saw a surge following the approval of the judiciary reform, with state-level voting currently underway to finalize the constitutional change. Moody’s has warned that this reform could threaten Mexico’s judicial independence and potentially impact the country’s credit rating. Meanwhile, mixed economic results from the US have reduced the likelihood of a 50 basis point rate cut by the Federal Reserve, with attention now turning to upcoming US Consumer Sentiment data to gauge market sentiment.
Mexico’s political situation has stabilized, but the approval of the judicial reform remains a certainty. The process involves the approval of 17 out of 32 states for it to become law. In terms of economic releases, the focus will be on data from INEGI revealing Aggregate Demand and Private Spending figures on September 18.
Moody’s has expressed concerns over the potential impact of the judicial reform on Mexico’s credit rating, stating that it could undermine the country’s sovereign credit quality through threats to judicial independence. In light of this, the USD remained under pressure in the US following mixed economic data releases, including a rise in Producer Price Index (PPI) figures for August and an increase in unemployment benefit claims.
Expectations for a 50 basis point rate cut by the Federal Reserve have been tempered by recent consumer and producer inflation reports in the US, with a 15% chance of such a move and an 85% likelihood of a 25 basis point cut according to CME FedWatch Tool data. The upcoming release of the Consumer Sentiment survey by the University of Michigan will be closely watched by USD/MXN traders to gauge market sentiment and potential currency movements.
Mexico’s Industrial Production figures for July offered mixed readings, with speculation of an economic slowdown despite inflation dipping below the 5% threshold in August. The Citibanamex Survey for September indicated expectations of rate cuts by the Bank of Mexico (Banxico) to 10.25% in 2024 and 8.25% in 2025, with forecasts suggesting a USD/MXN exchange rate of 19.50 by the end of 2024 and 19.85 by the end of 2025.
The technical outlook for USD/MXN suggests a downward trend in the short term, with the pair finding support at 19.50 and potentially at the August 23 swing low of 19.02. A bullish continuation would require a break above the psychological 20.00 level, with further resistance at the YTD high of 20.22 and potential levels at 20.57 and 20.82. The ongoing correction in the pair has shifted momentum negatively, despite the recent approval of the judicial reform and ongoing economic uncertainties.
Banxico, Mexico’s central bank, plays a crucial role in maintaining the country’s currency value and setting monetary policy. By adjusting interest rates based on inflation targets, Banxico aims to stabilize the economy and influence the value of the Mexican Peso (MXN). The central bank’s decisions are influenced by the US Federal Reserve, with interest rate differentials between Banxico and the Fed playing a key role in currency fluctuations and investor sentiment. Banxico meets eight times a year to evaluate and adjust its monetary policy based on economic conditions and external factors such as decisions made by the Federal Reserve.
