Mexican Peso extends its losses amid election concerns

• Mexican Peso hits new yearly low of 18.19 during European session before retreating.
• Mexican finance minister reassures markets, emphasizes financial discipline and investment.
• US job openings hit three-year low, signaling economic slowdown alongside below-estimate Durable Goods Orders.

The Mexican Peso edges lower against the US Dollar for the second straight day on Tuesday, though it has trimmed some earlier losses after hitting a new yearly high of 18.19 during the European session. However, softer US jobs data and Mexican Finance Minister Rogelio Ramirez de la O's conference call tempered volatility in the exotic pair. The USD/MXN trades at 17.90, gaining 1.25%.

The Mexican currency has lost almost 5% during the last few days. Therefore, Mexico’s Finance Minister, Rogelio Ramirez de la O, held a conference call earlier during the North American session to calm the financial markets after the Peso depreciated more than 4% and the Mexican Stock Exchange plummeted more than 6%.

He said, “We want to confirm to international organizations and private investors that our project is based on financial discipline, abiding by the autonomy of the Bank of Mexico, adherence to the rule of law and facilitating national and foreign private investment,” according to El Financiero.

Ramirez de la O accepted Dr. Claudia Sheinbaum’s invitation to remain in charge of Mexico’s finances once President Andres Lopez finished his term on September 30.

Morena’s overwhelming victory in the general election sounded the alarms of possible constitutional reforms that could eliminate autonomous regulators and threaten Mexican democracy.

Once the election results are confirmed, Morena will have a two-thirds majority in both houses, which could lead to a change in the Mexican Constitution.

According to the Wall Street Journal, “The proposed initiatives include allowing for the direct election of judges, slimming down congress, and eliminating the autonomous election agency. It would also boost the government’s role in the energy sector.”

Goldman Sachs analyst Alberto Ramos said, “Some bills are perceived as leading to institutional erosion and weakening the current checks and balances, and several are not viewed as market-friendly.”

In addition, Mexico’s economic docket revealed that fixed investment slowed in March, according to the National Statistics Agency (INEGI).

Across the border, the US Bureau of Labor Statistics (BLS) revealed that job openings dropped to their lowest level in three years, as depicted by the JOLTS report. Other data shows the economy is slowing as April Durable Goods Orders missed estimates and ticked lower.

Daily digest market movers: Mexican Peso on defensive as selling pressure continues

• Gross Fixed Investment in Mexico increased from 0.7% to 0.8% MoM in March. On a yearly basis, it showed a deceleration, expanding by just 3%, down from 12.5%.
• September should be a crucial month for the Mexican Congress. Morena’s majority could push bills blocked by the opposition, including the reduction of lawmakers and plans for direct election of the Supreme Court members.
• Morgan Stanley noted that if Mexico’s upcoming government and Congress adopted an unorthodox agenda, it would undermine Mexican institutions and be bearish for the Mexican Peso, which could weaken to 19.20.
• Speculation of another Banxico rate cut in June could pave the way for further upside in the USD/MXN.
• US JOLTs Job Openings in April edged lower from 8.355 million to 8.059 million, below estimates of 8.34 million.
• US Durable Goods Orders increased 0.6% MoM in April, below estimates and the previous reading of 0.7%
• The futures markets suggest the Federal Reserve might cut rates by 35 basis points in 2024, according to the December 2024 fed funds future rate contract.

Technical analysis: Mexican Peso depreciates as USD/MXN rallies above 17.90

As mentioned on Monday, “The USD/MXN downtrend begins to be threatened due to political uncertainty.”

The pair has decisively broken above the 200-day Simple Moving Average (SMA) and continued to extend its gains. The pair hit 18.19 during the European session but recovered some ground during the North American session.

Even though the Relative Strength Index (RSI) is strongly overbought, momentum has shifted to the upside.

That said, if the USD/MXN clears the psychological 18.00 figure, up next would be the year-to-date (YTD) high of 18.15. Further gains are seen above the latter, on October 6, 2023, at a high of 18.48, before the exotic pair trends up toward the 19.00 figure.

On the downside, if sellers push the exchange rate below the 17.00 figure, that could pave the way to test the YTD low of 16.25.