The Mexican Peso has experienced a decline against the US Dollar for the fourth consecutive day, with the USD/MXN pair rebounding from a daily low of 19.29 to trade at 19.45. This depreciation of the Peso comes as Mexico’s Economic Activity expanded in July, while Retail Sales contracted for the third straight month. This mixed economic data contributed to the weakness of the Peso, along with revelations from S&P Global indicating solid but slightly lower business activity in the US. The Peso’s performance has been affected by these factors, as traders navigate the uncertain economic landscape.
The Instituto Nacional de Estadística Geografía e Informatica (INEGI) reported that Mexico’s Economic Activity grew by 0.6% month-over-month in July, a significant improvement from the previous month’s stagnant performance. However, Retail Sales continued to decline, albeit with a smaller contraction compared to the previous month. Looking ahead, the market is anticipating the release of September’s mid-month inflation figures from Mexico, as well as the upcoming monetary policy decision by the Bank of Mexico (Banxico) on Thursday. The Citibanamex Expectations Survey revealed that most economists are expecting a 25-basis-point rate cut from Banxico, with some even predicting a more aggressive 50-bps cut.
In the US, Flash PMIs showed mixed results, with manufacturing activity contracting further while the services sector continued to support economic growth. Despite signs of economic deceleration, the Atlanta Fed’s GDP Now model projects a 2.9% growth rate for the US economy in the third quarter. The performance of the USD/MXN pair has been influenced by these economic indicators, as well as statements from Federal Reserve officials regarding the risks to the labor market and the potential for interest rate adjustments in the future.
Analyzing the technical aspects of the USD/MXN pair, it is currently showing an upward bias with momentum favoring buyers. The Relative Strength Index (RSI) has crossed above its neutral line, indicating potential for further gains beyond the psychological level of 19.50. Resistance levels to watch include 19.50, 19.61, and 20.00, while support levels are at 19.29, 19.08, and 19.06. The performance of the pair will continue to be influenced by economic data releases and central bank decisions in both Mexico and the US.
Understanding the role of Banxico in Mexico’s economy is crucial for investors and traders in the foreign exchange market. As the country’s central bank, Banxico’s primary mission is to maintain low and stable inflation levels through setting monetary policy and interest rates. The decisions made by Banxico are closely tied to those of the US Federal Reserve, with the central bank meeting regularly to adjust monetary policy in response to economic conditions. The relationship between interest rates in Mexico and the US, as well as market expectations for future rate adjustments, play a significant role in the performance of the Mexican Peso against the USD.
