Mexican Peso retreats despite boost in business confidence, amid risk aversion

• Mexican Peso erases last Friday’s 0.70% gains on risk aversion.
• Mexico’s Consumer Price Index (CPI) for the 12 months to September will be the highlight of the economic agenda for the next week.
• USD/MXN is forming a bullish-engulfing candlestick chart pattern, which could exacerbate a rally to the 200-day SMA.

The Mexican Peso (MXN) weakened versus the US Dollar (USD) during the North American session on Monday due to some risk aversion, with market participants awaiting a speech by the US Federal Reserve (Fed) Chairman Jerome Powell later in the day. Although there was a slight improvement in Mexico’s Business Confidence, the USD/MXN reclaimed the 17.50 area, posting gains of 0.70%.

Business Confidence in Mexico rose slightly to 53.8 in September from 53.7 in August, revealed the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). The data showed optimism about investment prospects, Mexico’s future economic outlook, and regarding the company's current financial situation. However, there’s some caution amongst economists as Mexico’s financial system stability committee said the economy could slow down due to a complex external scenario, although domestic demand is expected to underpin the economy.

Daily Digest Market Movers: Mexican Peso rally loses steam as the USD/MXN climbs back above 17.50

• The Bank of Mexico (Banxico) held rates at 11.25% and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).
• Banxico’s Government Board highlighted Mexico’s economic resilience and the strong labor market as the main drivers to keep inflation at the current interest rate level.
• BBVA updated Mexico’s economic growth forecast, with the Gross Domestic Product rising by 3.2% from 2.4% in 2023 to 2.6% from 1.8% in 2024.
• Mexico posted an August MXN 38,944.3 million deficit.
• Mexico’s Unemployment Rate edged lower from 3.1% in July to 3.0% in August, according to the National Statistics Agency (INEGI).
• September’s first-half inflation in Mexico was 4.44%, down from 4.64% in August, according to INEGI.
• Being an emerging market currency, the Mexican Peso weakens amid risk aversion. 
• The drop in Oil prices weighs on the Mexican currency, as its economy relies on crude exports.
• Moody’s rating agency warned the fiscal strategy of the Mexican government in 2024 must be credible after the June elections in defining the country’s stable outlook.
• In July, Moody’s lowered Mexico's rating to “Baa2” with a “stable” outlook but warned of fiscal pressures for the next government due to the 2024 economic budget.

Technical Analysis: Mexican Peso, could extends its losses past the 200-day SMA

The Mexican Peso (MXN) is erasing last Friday’s gains, with the USD/MXN beginning to form a bullish-engulfing candle pattern after the pair bottomed at around 17.41. The emerging market currency could continue its depreciation if the exotic pair manages to break resistance at September’s 27 high at 17.81, immediately followed by the 200-day Simple Moving Average (SMA) at 17.82. Once those two areas are cleared, the USD/MXN next stop could be 18.00.