USD/MXN trims losses after reaching 2-month highs near 19.80

  • US Dollar retreats against Mexican peso from highest since June, still negative for the day. 
  • Adverse market sentiment and Argentina’s elections results weigh on MXN. 

The USD/MXN rose during the European session from below 19.40 to 19.77, reaching the highest intraday level since early June. From the top pulled back and as of writing, trades at 19.57, far from the top but in positive territory for the day. 

The move higher took place amid risk aversion in global markets that also affected other Emerging market currencies and also following the presidential election in Argentina. The opposition candidate Fernández won by a landslide the primary election. His running mate Cristina Fernández de Kirchner. Argentina’s assets and the peso dropped dramatically at the opening on Monday discounting a victory of Fernández over President Macri in October. 

The US Dollar jumped more than 30% against the Argentine peso, and Argentine stocks in New York are falling near 50%. The devaluation of the ARS is having an impact in other currencies of Latin America, including the Mexican peso. 

The week Banxico decides 

The critical event in Mexico will the on Thursday with the central bank meeting. Currently, the policy rate stands at 8.25%, the highest in a decade. At the last meeting, one member voted for a rate cut, as inflation trends lower and economic activity stagnates. The tone of the central bank of the last meeting still does not signal an imminent rate cut.

Win Thin, Currency Strategist at Brown Brothers Harriman (BBH), points out the central bank is expected to keep rates steady.  “However, the market is split.  Of the 20 analysts polled by Bloomberg, 8 see a 25 bp cut, 11 see no cut, and 1 sees a 50 bp cut.  The economy remains weak while inflation is back within the 2-4% target range.  The peso may be the deciding factor, with excessive weakness likely to delay a cut until the next meeting on September 26.

What happens with the Mexican peso is a key development for Banxico. If USD/MXN raises above 20.00, it could create concerns among central bank officials, reducing the chances of a rate cut. 

Technical Levels 

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