- Mexican Peso pressured as Trump’s chances in the US election rise.
- Mexico’s recent economic data shows ongoing slowdown with weak Retail Sales and Economic Activity suggesting possible Banxico rate cuts.
- This week’s focus includes Mexico’s Q3 GDP, while US data releases will feature GDP, jobs data, and inflation figures.
The Mexican Peso depreciates against the US Dollar on Monday, extending its losses past the psychological 20.00 figure. The Peso is being undermined by fears of former President Donald Trump’s victory in the US election on November 5, while a tranche of Mexico’s economic data last week suggests the economy is decelerating. The USD/MXN trades at 20.02, up 0.41%.
In 2016, Donald Trump won the election, which boosted the USD/MXN from 18.60 to 20.90. However, that was just the first leg. The rally extended to 22.00 after Trump took office in January 2017. A victory for the former US President would imply imposing tariffs on Mexican imports and restrictive immigration policies, which could hurt the Mexican currency.
Polling site FiveThirtyEight shows that Trump’s odds of winning the US election have risen to 52%, against 48% for Vice President Kamala Harris. Nevertheless, the Democratic nominee remains marginally ahead in most national polls.
Bloomberg Economics reported on an analysis made last month that US federal debt may rise to 116% of Gross Domestic Product (GDP) under Trump’s tax-cut plan. Under Harris’s platform, it would be on a path to 109%.
Mexico’s Retail Sales and Economic Activity data for August were weaker than expected last week, according to INEGI. This, along with a goodish mid-month inflation report in October, could open the door for another interest rate cut by the Bank of Mexico (Banxico) at the upcoming November meeting.
The swaps market suggests Banxico will cut between 175 to 200 basis points over the next 12 months. Mexico’s central bank is expected to lower rates to 10.25% for the upcoming meeting.
Ahead of the week, Mexico’s economic schedule will feature the release of Gross Domestic Product (GDP) figures for Q3 2024, Business Confidence, and S&P Global Manufacturing PMI.
In the US, the economic docket is expected to reveal jobs data, GDP for the third quarter of 2024 on its preliminary reading, the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index and Nonfarm Payrolls (NFP).
Daily digest market movers: Mexican Peso on the backfoot ahead of busy Mexico-US docket
- Mexico’s GDP in Q2 came at 0.2% QoQ and 2.1% YoY. If GDP for the third quarter, on a quarterly and annual basis, misses those marks, it could mean that the economy might be tipped into a recession.
- On Tuesday, the US economic docket will feature US JOLTS for September, which are expected to drop from 8.04 million to 7.99 million.
- At the same time, the Conference Board (CB) is expected to release October’s Consumer Confidence reading, which is likely to improve from 98.7 to 99.3.
- The US Bureau of Economic Analysis will reveal the GDP for the third quarter on Wednesday. Estimates suggest the economy grew 3% QoQ.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 49 bps of Fed easing by the end of the year.
USD/MXN technical outlook: Mexican Peso tumbles as USD/MXN closes into 20.00
The USD/MXN uptrend remains intact despite consolidating near 19.70/20.00 for the last six days. Momentum remains bullish as the Relative Strength Index (RSI) depicts. This means the pair could challenge year-to-date (YTD) peaks as we get closer to November 5, US election day.
If buyers clear the 20.00 figure, they could test the last week peak at 20.09. On further strength, the USD/MXN could aim toward the YTD high at 20.22, ahead of key psychological levels of 20.50 and 21.00.
On the other hand, if sellers reclaim the October 18 low at 19.64, this could pave the way for a challenge to 19.50. The next move would be toward the October 4 swing low of 19.10 before testing 19.00.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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