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MXN Partially Recovers After Tuesday Sell-Off

MEXICO
  • The Mexican peso was the worst performer among Latin American currencies yesterday following the large beats in US Inflation data. In line with Peso losses and higher US yields, local swap rates rose, with the TIIE curve bear steepening between 4-11 bps.
  • Combined with the stronger dollar, comments from the Banxico Governor nominee may have also weighed on the currency. Analysts are currently divided on whether the central bank's pre-emptive action in June, was a signal of additional hikes being imminent. Herrera's comments are being interpreted as marginally dovish, where he stated he doesn't see a tightening cycle until 2022.
    • For reference, Congress will begin the process of considering his nomination in the next few weeks. If confirmed, he will take over at the end of 2021.
  • Lingering anxieties surrounding the President's energy reform also continues to be opposed by independent power firms and investors on grounds that it would hurt competition.
  • Marginal USD weakness to start on Wednesday sees USDMXN in very familiar territory around 20.00. 19.70-20.20 continues to be the short-term range. Price needs to get above 20.2153, Jun 24 high, to alter the bearish technical picture.
  • No further data this week so local assets are likely to focus on Chair Powell's testimony on the Hill.
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