The Mexican Peso’s recovery came to a screeching halt amidst political risk surrounding the upcoming US presidential election and new developments in Mexico’s judicial reform scenario. With below-par macroeconomic data and potential effects from a depreciating Japanese Yen, the Peso faced additional weaknesses. The Peso faces a bout of increased political risk garners.
The Mexican Peso has been feeling the heat due to the rising likelihood of Donald Trump securing a victory in the US presidential election on November 5. Tight polls in battleground states and Trump’s 51% chance of winning have added pressure on the Peso. Trump’s promise to impose higher tariffs on foreign imports, particularly Mexican autos, would cause a significant blow to the Mexican economy heavily reliant on nearshoring manufacturing goods for the North American market.
Mexican senators debates a law to limit the judiciary’s power to block reforms, a move that could further impact the Mexican Peso negatively. The ruling aims to restrict the judiciary’s ability to impede reforms made by lawmakers, stirring debates in the parliament. Western investors might disapprove of such actions which could lead to a weaker Peso and reduced capital inflows into the country.
In terms of technical analysis, the USD/MXN pair seems to be poised to begin a new upward leg. The pair has paused its pullback and looks set to move higher, possibly breaking past the 20.00 level. The USD/MXN’s uptrend is supported by a rising channel on various time frames, indicating a potential continuation higher. The pair may see a bullish “abc” pattern with a Fibonacci 61.8% extension target of 20.29.
The Mexican Peso’s value is influenced by various factors such as the country’s economic performance, central bank policies, foreign investment levels, remittances, geopolitical trends, and oil prices. Mexico’s central bank, Banxico, aims to maintain low and stable inflation levels by adjusting interest rates. Macroeconomic data releases also play a significant role in assessing the state of the economy and impacting the Peso’s valuation. The Mexican Peso tends to thrive during risk-on periods and weaken during market turbulence or economic uncertainty.
Overall, the Mexican Peso’s recent pause in recovery is largely attributed to political risk factors like the US presidential election and internal legislative debates. Technical analysis suggests a potential uptrend in the USD/MXN pair, while economic fundamentals, central bank policies, and macroeconomic data releases will continue to play a crucial role in determining the Peso’s value in the near future. Investors will closely monitor these factors to gauge the performance of the Mexican Peso in the coming days.
