USD/MXN climbs from YTD lows, strengthening US economy and higher rates prospects, underpins the USD

• USD/MXN rebounds off year-to-date lows, climbing towards 17.20, fueled by positive US economic data.
• Private hiring data and upbeat consumer sentiment in the US signal economic resilience, hinting at a potential Fed rate hike.
• Comments from Dallas Fed President Lorie Logan further support the USD/MXN rally, as she voices favor for a June rate hike.

USD/MXN rebounds off year-to-date (YTD) lows reached beneath the 17.00 figure, rises steadily past the 17.10 mark on solid data from the United States (US), showing the economy’s resilience despite 500 bps of tightening and expectations for more aggressive monetary policy. Hence, the USD/MXN moved upwards from a YTD low of 16.9761 to the 17.20 region at the time of writing.

US economy demonstrates tenacity: A catalyst for USD/MXN’s leap from yearly lows

A busy US economic calendar on Thursday began with the ADP  National Employment report from June, which shows that private hiring skyrocketed to 497K, above estimates of 228K. The latest consumer sentiment poll showed that Americans were upbeat about the labor market in the last month, relative to May. Further data showed that Initial Jobless Claims exceeded 245K estimates and rose by 248K in the week ending July 1. Although it showed signs of easing, private hiring revealed by ADP could be a prelude to Friday’s US Nonfarm Payrolls, reported to be announced on July 7.

JOLTs data revealed that job vacancies dropped in May though they remained high, with figures rising by 9.824M, falling almost 500K, and missing the 9.935M estimated.

Aside from labor market data, the US ISM Non-Manufacturing PMI for June came above estimates of 51 and climbed to 53.9. Digging deep into the report, a measure of prices paid showed signs of deflation.

After the data, money market futures showed odds for a 25 bps hike by the Federal Reserve (Fed) increased to 95%, while for the November meeting increased to 38%. Consequently, US Treasury bond yields advanced above 4% for the first time since March 2023.

The USD/MXN resumed its uptrend on higher US Treasury bond yields. Also, comments from the Dallas Fed President Lorie Logan that she favored a rate hike in June were a catalyst for USD/MXN to lift the exchange rate from 17.12 toward the 17.20s area.

USD/MXN Price Analysis: Technical outlook

The USD/MXN remains downward biased but jumped above the 20-day Exponential Moving Average (EMA) at 17.1802. If USD/MXN achieves a daily close above the latter, the USD/MXN can rally toward the May 17 daily low of 17.4039, a crucial resistance level that, once cracked, can pave the way to challenge the 50-day EMA at 17.4460 before challenging 17.5000. Conversely, if USD/MXN drops beneat 17.1802, the pair could test the 17.00 mark.