USD/MXN surges above 17.00 amid mixed US data, Banxico moves

• USD/MXN trades at 17.1222, up by 0.56%, recovering from a daily low of 16.9699.
• US Nonfarm Payrolls for August meet expectations, but the Unemployment Rate rise spurred an initial drop in USD/MXN.
• ISM Manufacturing PMI shows signs of improvement, helping the USD recover.

The American Dollar (USD) recovered some ground against the Mexican Peso (MXN), gaining earlier in the session, diving to a daily low of 16.9699. Still, recent economic data from the United States (US) and high US yields weighed on the emerging market currency, which trims its gains to 12.09% in the year. The USD/MXN is trading at 17.1222, edges high by 0.56%.

MXN trims yearly gains as US bond yields and economic data from the US weigh on the emerging market currency

Before Wall Street opened, the US Department of Labor revealed the US economy added 187K jobs to the economy, the same number as July, which could have been positive for the Greenback but wasn’t. The Unemployment Rate ticked up by 0.3% from 3.5% to 3.8%, approaching the Federal Reserve’s (Fed) target of 4.1% throughout 2023.

Initially, the USD/MXN dropped like a stone from daily highs of around 17.2000, below the 17.0000 figure, as investors weighed that Jerome Powell and Co would not continue to tighten monetary policy. However, traders booked profits ahead of additional market-moving data.

After the employment report, the ISM Manufacturing PMI for August showed signs of improvement, rising to 47.6 from 46.4 in July, yet remained in contractionary territory. Most of the subcomponents rose, except for new orders, which remained depressed, but factory inventories remaining at lower levels could spur a jump in orders in the near term.

The markets reacted oppositely, following the business activity report, even though traders pared additional rate hikes by the Fed, and as of today, expect the first rate cut by May 2024, as shown by the CME FedWatch Tool. The USD/MXN reversed its course and climbed towards 17.1500 but failed to gain traction to lift the exchange rates to new weekly highs above 17.2012.

On the Mexican front, the Bank of Mexico (Banxico) decided to cut its hedging program and reported over $5.65 billion in remittances in July, edging near the monthly record of $5.70 billion hit last May. Also, the August S&P Global Manufacturing PMI report came at 51.2 vs. 53.2 in July, portraying slight weakness in the sector.

USD/MXN Price Analysis: Technical outlook

From a technical standpoint, the USD/MXN has broken to the upside, set to register its most significant weekly gain of more than 2.40%. Buyers are eyeing a break of a downslope resistance trendline drawn from April 2023 highs of 18.4010, which, once cleared, could put the May 17 swing low of 17.4038 as crucial resistance. A breach of the latter would put a challenge of the 18.0000 figure into the table.