Mexican Peso moderately depreciates as global rate cut turn sours sentiment

• Mexican Peso slops some 0.12% after major central banks cut rates.
• Mexico’s Finance Minister reassures fiscal discipline and Banxico’s autonomy, capping further Peso losses.
• Mixed economic signals: Mexican Auto Exports rise in May; analysts forecast headline inflation to hit 4.82%.

The Mexican Peso depreciated moderately against the US Dollar on Thursday after a major central bank added its name to the list of institutions that began to ease monetary policy as the disinflation process evolved. Meanwhile, Mexico’s election “hang-over” dissipates as the Mexican currency stabilizes after losing 7% during the week. The USD/MXN trades at 17.52, up 0.12%.

Sentiment soured after the European Central Bank (ECB) decided to cut rates by 25 basis points on Thursday, sending global yields up and US equities lower. Therefore, the emerging market currency slipped.

Mexican Finance Minister Rogelio Ramirez de la O capped the Peso’s fall earlier this week by reassuring investors that the upcoming government would be fiscally disciplined and respect the autonomy of the Bank of Mexico (Banxico).

Data-wise, Mexican Auto Exports increased in May but less than in April, signaling the economy is feeling the impact of higher borrowing costs set by Banxico.

According to a Reuters survey, analysts in Mexico expect an increase in headline inflation in May. The median estimates inflation would hit 4.82%, climbing for the third straight month. However, underlying inflation is foreseen settling at 4.29%, its lowest level since April 2021.

Across the border, the US economic docket revealed that the number of Americans filing for unemployment benefits rose above estimates as traders braced for the latest employment report on Friday.

Daily digest market movers: Mexican Peso weakens as election fears wane

• Auto Exports in Mexico increased but trailed April’s  14.4% print, jumping by 13% YoY. Auto Production growth slowed from 21.7% to 4.9%  YoY for the same periods.
• Fears that Morena’s majority could push bills that include reducing the number of lawmakers and plans for electing Supreme Court members were the cause behind Mexican Peso’s Black Monday.
• 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.
• The US Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the week ending June 1 were higher than the expected 220K, increasing by 229K above the prior week’s data.
• On Friday, the BLS would feature May’s Nonfarm Payrolls report, which is expected to show the economy added 185K people to the workforce, above the prior month’s 175K.
• The futures market suggests the US Federal Reserve might cut rates by 38 basis points in 2024, according to the December 2024 fed funds future rate contract.

Technical analysis: Mexican Peso stays firm yet weakens as USD/MXN rises above 17.50

The USD/MXN shifted to a neutral-upward bias, but it could consolidate at around the 17.50 – 18.19 range in the short term. The momentum has changed in favor of US Dollar bulls, as depicted by the Relative Strength Index (RSI) and also by buyers lifting the spot price above the 200-day Simple Moving Average (SMA) of 17.60.

That said, the USD/MXN’s first resistance level would be the June 3 high at 17.74, followed by the 18.00 psychological level. Once surpassed, the next stop would be the year-to-date high of 18.19.

On further weakness, the next support would be the 200-day SMA at 17.16, followed by the 17.00 figure, ahead of the 100-day SMA at 16.91. Once cleared, the 50-day SMA at 16.84 would be next.