USD/MXN drops on mixed US data despite Mexican budget concerns

• USD/MXN trades at 17.1127, down 0.23%, as US Retail Sales disappoint, but jobless claims and PPI exceed expectations.
• Mexican 2024 budget proposal to widen deficit to 4.9% of GDP raises eyebrows, pushing Mexico’s 10-year bond yield up 17 basis points.
• US Dollar Index (DXY) climbs 0.40% to 105.17, influenced by seesawing US Treasury yields and mixed economic data.

The Mexican Peso (MXN) strengthened for the fourth straight day against the Greenback (USD) earlier in the North American session after solid US economic data spurred investors’ risk appetite. The USD/MXN is trading at 17.1127, retreating some 0.23% after hitting a daily high of 17.2050.

USD/MXN retreats as us retail sales miss and Mexican budget deficit plans stir market sentiment

The US Department of Commerce revealed that US Retail Sales in August were below estimates of 2.9% YoY, rose by 2.5%, but on a monthly reading, exceeded forecasts. The jump in oil prices bolstered sales, as inflation ticked higher as expected on Wednesday, as the US Department of Labor revealed August’s CPI.

Meanwhile, prices paid by producers advanced 1.6% YoY in August, above 1.2% forecasts, doubling July’s 0.8% increase. The Producer Price Index (PPI) revealed by the US Bureau of Labor Statistics (BLS), rose the most in over a year. At the same time, jobs data revealed that Initial Jobless Claims for the week ending September 9 rose to 220K, below the consensus of 225K, underscoring a hot labor market.

US Treasury bond yields seesawed after the data, with the most sensitive to interest rates, the 2-year note, yielding 5.035% at the data release, ahead of retreating below the 5.0% threshold. This bolstered the Greenback, as shown by the US Dollar Index (DXY). The DXY, which tracks the USD performance vs. a basket of six currencies, climbs 0.40%, at 105.17.

Across the border, the recent budget has gathered attention from economists in Mexico. The fact the 2024 proposed budget would increase the deficit from 3.3% to 4.9% of the Gross Domestic Product (GDP) generated different reactions as the country prepares to elect the current President, Andres Manuel Lopez Obrador. Mexico’s 10-year bond yield rose 17 basis points on Monday on the prospect of higher borrowing. Analysts at Goldman Sachs noted, “From this expansionary baseline, fiscal slippages (which would lead to a budget deficit of around 6% of GDP) could trigger sovereign rating downgrades, in particular, if growth decelerates visibly.”

USD/MXN Price Analysis: Technical outlook

Despite trading near the week’s lows, the USD/MXN appears to have bottomed at around 17.10, unable to extend its fall, capped by the presence of the 20-day Moving Average (DMA) at 17.0919. IF that level is breached, that will put the 50-DMA in play at the 17.0000 psychological level. Conversely, if the pair manages to stage a recovery, USD buyers must reclaim the 100-DMA at 17.2361, so they could threaten to recover the 17.5000 mark.