Mexican Peso edges lower on Monday

The Mexican Peso edges lower at the start of the new trading week.
MXN downside is limited, however, by upbeat US and domestic data, suggesting a strong exports.
Moves by judges to block contentious reforms to the judiciary further support the MXN.

The Mexican Peso (MXN) edges lower in its key pairs on Monday, however, downside remains limited by a mixture of a more benign outlook for its most significant trading partner, the United States (US) – following better-than-expected US employment data – as well as recent robust domestic data from Mexico.

Official figures out on Friday showed US Nonfarm Payrolls (NFP) beat expectations by a wide margin in September, rising by 254K when economists had only expected a 140K increase, according to data from the Bureau of Labor Statistics (BLS). In addition, the Unemployment Rate fell to 4.1% from 4.2% when markets had feared the opposite. The data overall showed the US economy remains in good shape, averting fears of a “hard landing”.

In Mexico, meanwhile, both Automobile Production and Exports rose in September. Production climbed 11.71% from 8.30% in the previous month, and exports by 4.8%, up from 1.7% in August. That said, Mexico’s Jobless Rate in August hit 3.0%, which was above July’s 2.9%, according to data from the Instituto Nacional de Estadistica y Geografia (INEGI).

Mexican Peso rallies as fears ease about Sheinbaum, Judges block new laws

The Mexican Peso is further supported by easing investor concerns regarding radical reforms proposed by former President Andres Manuel Lopez Obrador (AMLO). Many investors deem the reforms “anti-market”. This caused a sell-off in Mexican financial assets after the re-election of his Morena-led coalition in June. It was also partly responsible for the Peso weakening 10% in the months after the election.

Although the new President Claudia Sheinbaum has said she broadly backs AMLO’s radical reform agenda, markets appear to be more optimistic about their implementation under her tutelage, according to Christian Borjon Valencia, Analyst at FXStreet.

The first key reform was voted through at the tail end of AMLO’s tenure in September. It calls for the election of judges rather than their appointment. It has been heavily criticized for undermining the independence of the judiciary and, as a result, scaring away potential foreign investors key to Mexico’s growth as a nearshoring destination.

The Mexican Peso gained ground at the end of last week, however, after the Mexican Supreme Court voted to delay the implementation of the new judicial reforms, so they could re-examine and possibly make revisions to the new laws. Their move was backed by the legal principle that the laws should not risk undermining the independence of the judiciary.

Over the weekend, the National Electoral Institute (INE) challenged a further brake to the implementation of AMLO’s judicial reforms, this time by several district Judges. The INE made an appeal to the Federal Electoral Court (TEPJF) asking to revoke the block, which seeks to inhibit the elections for new judges scheduled for June 1, 2025, according to El Financiero.

Technical Analysis: USD/MXN breaks below 50-day Moving Average

USD/MXN breaks below the 50-day Simple Moving Average (SMA), a key line in the sand for traders, and tests the bottom of a medium-term rising channel.

USD/MXN Daily Chart

USD/MXN is expected to find support at the base of the channel, and there is a chance it will recover and start to rise again. The medium and longer-term trends are still bullish, and given the technical analysis principle that “the trend is your friend,” the odds favor a recovery and continuation higher.

However, the short-term trend is bearish, and the pair has now broken below the 50-day SMA, a key level and the first obstacle to more downside. A decisive breakout from the channel would risk threatening the medium-term uptrend in the USD/MXN.

A decisive break would be characterized by a longer-than-average bearish candlestick that pierced cleanly below the channel line and closed near its low. Such a break would then probably follow-through lower, to an initial downside target at 19.00 (August 23 low, round number) and then 18.60, the level of the 100-day SMA.

Mexican Peso FAQs

What key factors drive the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

How do decisions of the Banxico impact the Mexican Peso?

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

How does economic data influence the value of the Mexican Peso?

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

How does broader risk sentiment impact the Mexican Peso?

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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