Mexican Peso stumbles to a seven-month low amidst resilient US Dollar, domestic economic strains

• Mexican Peso is marking over 5% weekly losses as US Nonfarm Payrolls outperform analysts' estimates.
• Mexico's encouraging data fails to lift the Peso’s amid government regulatory changes.
• Rumors of Tesla’s Giga factory cancellation and airport tariff changes amplify investor apprehension in Mexico.

Mexican Peso (MXN) selling pressure continues, with the emerging market currency losing ground against the US Dollar (USD) early in the North American session. The USD/MXN pair climbed to a seven-month high of 18.48, shy of testing the psychological 18.50 price level. Solid economic data from the United States (US) underpins the USD/MXN, which is posting substantial gains of more than 5% in the week.

The US Bureau of Labor Statistics (BLS) revealed the Nonfarm Payrolls report for September, which crushed estimates as job creation was almost twice expectations, with figures coming at 336K vs. 170K forecasts by analysts. Further data showed the Participation Rate was unchanged, while the Unemployment Rate was aligned with August’s figures at 3.8%. Average Hourly Earnings growth, seen as an equivalent of inflation linked to wages, was 4.2% YoY, a tick lower than foreseen.

Daily Digest Market Movers: Mexican Peso weakens further; economists lift estimates for USD/MXN

• US Nonfarm Payrolls for September came at 336K, exceeding forecasts of 170K, and crushed last month’s 227K (upwardly revised from 187K).
• The Unemployment Rate in the US stood at 3.8% above estimates but flat compared with August, while the Participation Rate stood at 62.8%.
• Average Hourly Earnings eased from 4.3% to 4.2% YoY.
• Auto Exports in Mexico rose 16% YoY in September, above the prior month’s 15.7%.
• Mexico’s September auto Production soared 24%, smashing August’s minuscule 2.8% growth.
• According to Reuters, “Rohan Patel, Tesla's senior public policy and business development executive, in a post on the platform X, formerly Twitter, rejected a Mexican media report saying Tesla had canceled its plans and thanked local, state and federal officials.”
• The Mexican Stock Exchange continues to feel the effects of the government’s decision to change airport tariffs, while rumors of Tesla’s canceling its Giga factory plant spooked investors.
• A Citi Banamex poll showed economists estimate headline inflation at 4.70% and core at 5.09% for the year’s end.
• Analysts polled by Citi Banamex foresee the USD/MXN to end 2023 at 17.80, up from 17.60, and for 2024 at 18.86, up from 18.70 two weeks ago.
• On Wednesday, the IMF raised Mexico’s growth projection in 2023 from 2.6% to 3.2% and from 1.5% foreseen in July to 2.1% for 2024.
• Banxico’s September poll amongst economists reported that interest rates are expected to remain at 11.25% while inflation would dip to 4.66%.
• The same poll shows the exchange rate is set to finish at around 17.64, down from 17.75.
• Mexico’s S&P Global Manufacturing PMI for September came at 49.8, sliding to contractionary territory and below August’s 51.2, as the economy loses steam.
• The Bank of Mexico (Banxico) held rates at 11.25% in September 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.

Technical Analysis: Mexican peso at the brisk of testing 18.50

The daily chart shows that the Mexican Peso is set to extend its losses. The USD/MXN pair has hit a new cycle high at 18.48, putting into play a challenge of the psychological 18.50 figure, which could extend towards the April 2018 yearly low of 18.60. With those levels cleared, the next stop would be the March 24 high at 18.79, followed by the psychological 19.00 figure.