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MEXICO: Post Data Equity Boost Lends Further Support to Peso

MEXICO
  • Despite the upward pressure for the dollar in the aftermath of the US data releases, the strong extension higher for equities has driven the Mexican peso higher, with USDMXN breaking below last weeks lows at 18.7750, and printing 18.6584 in recent trade. We noted earlier, this may signal scope for a deeper correction to the 50-day EMA which lies at 18.3381. A clear break of the 50-day average would undermine the bullish theme.
  • CIBC point out that given the risks clustered in September (i.e. constitutional reforms, US presidential debate, DM CBs rate decisions) they are a bit more patient than the market for the remainder of 2024 and expect only one more 25bps rate cut this year from Banxico. 
  • In this context, despite the higher vols than at the start of H2, CIBC recognize that the high MEX-US rate differential will continue to act a safety net for the MXN, providing room for opportunistic USDMXN shorts in the near term. That said, the path ahead for USDMXN remains one of high peaks and deep valleys as the market assesses Banxico’s increased dovishness into 2025, the repercussions of US elections/Middle East tensions on global growth and commodity prices, and on-going local risks.
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