USD/MXN slides on softer Greenback and optimistic Mexican economic projections

• USD/MXN drops 0.71% to 17.4624, influenced by a softer US Dollar Index, which declines 0.49% to 104.53 despite rising US bond yields.
• Mexican Industrial Production shows modest growth, while Finance Ministry’s optimistic GDP projections draw skepticism.
• US CPI data for August in focus, expected to rise YoY, potentially reinforcing the Fed’s ‘higher for longer’ rate stance.

The Mexican Peso (MXN) took advantage of a softer US Dollar (USD) on Monday, ahead of the release of inflation figures in the United States (US). The exchange rate traveled as high as 17.5927 before retracing on investors seeking risk. That and Asian central banks propelling their local currencies weakened the USD. The USD/MXN is trading at 17.4624, down 0.71%.

Mexican Peso gains ground against a weakening US Dollar as investors await key US inflation data and weigh Mexico’s economic outlook

Comments by the Bank of Japan (BoJ) Governor Kazuo Ueda prompted investors to close short positions on the Japanese Yen (JPY), spurring weakness on the Greenback. Also, China’s strict scrutiny on US Dollar buying by domestic companies was capped under $50 million, with purchases at or above that amount requiring approval by the People’s Bank of China (PBoC) central bank.

Consequently, the US Dollar Index (DXY), which measures the buck’s performance against a basket of peers, drops 0.49% and sits at 104.530, a headwind for the USD/MXN. This is despite the recent uptick in US bond yields, with the 10-year benchmark note rate gaining three basis points at 4.296%.

Meanwhile, data from Mexico showed that Industrial Production rose by 4.8% in July, a tick lower than the upward revised June figures at 4.9% YoY, while on a monthly basis, decelerated to 0.5% from 0.6% in June.

In other news, the Mexican Finance Ministry projects Mexico to grow between 2.5% and 3.5%, seen as optimistic by analysts. Sources quoted by El Financiero said the forecast is far from the 1.7% consensus and 1% above the Bank of Mexico (Banxico) 2.1% projection. The economic package in Mexico for 2024 proposes an increase in the fiscal deficit from 3.3%  to 4.9% of GDP in 2023, the largest negative balance in 36 years. An analyst cited by El Financiero said, “It is irresponsible to project a deficit, especially when the economy is growing.”

Aside from this, the US economic agenda is scarce on Monday, but it would gather pace on Wednesday with the release of the Consumer Price Index (CPI) for August. Data is expected to rise compared to July’s numbers, meaning the US Federal Reserve (Fed) would need to keep rates higher for longer. The consensus estimates the CPI to rise 3.6% YoY from 3.2% in July. Core CPI is foreseen to slow from 4.7% to 4.3%

USD/MXN Price Analysis: Technical outlook

After printing three consecutive sessions failing to crack above 17.800, the USD/MXN is retreating toward the September 8 low of 17.438, which could pave the way for further losses once broken. The 100-day Moving Average (DMA) at 17.265 emerges as the next support, followed by the 20-DMA at 17.096 and the 50-DMA at 17.008. Conversely, if the pair stays above 17.440, expect further consolidation within the 17.391-17.707 before fundamental news triggers a range break.