- Mexican peso continues to be among the weakest currencies in the world affected after airport vote.
- Economy rebounds in Q3 in Mexico, but investors appear to be losing confidence in President-elect AMLO.
The Mexican peso failed to hold to modest gains and dropped during the American session, reaching a fresh 4-month low against the US dollar. It remains under pressure like most Mexican assets. From Friday’s close lost almost 4%.
Economy rebounds, not MXN
Data released today showed that the Mexican economy rebounded in the third quarter, on the back of stronger industrial output and an improvement in the service sector and also amid a boost in consumer confidence following the presidential elections. During Q2 the economy contracted 0.2% but rebounded 0.9% in Q3; from a year ago the economy grew 2.6%.
The improvement in the economy did not help the peso that remains under pressure. Yesterday, Andrés Manuel López Obrador announced he would cancel the ongoing construction of a new airport following a citizen consultation. The announcement created fears about AMLO’s economic policies and its impact. Equity prices fell sharply in Mexican markets after the airport vote and government bond yields soared. The 10-year yield rose from 8.35% to 8.70%.
Volatility around MXN is likely to persist over the next days and if the decline of the peso continues, expectations about an intervention from the Bank of Mexico to prevent further weakness will rise.
USD/MXN Levels
The pair just climbed to 20.14, the highest since late June and then pulled back modestly. It was hovering around 20.05/10, with the bullish tone intact. The retreat to 19.90 was short-lived and the greenback climbed back to the top.
The area around 20.10/15 has become a strong short-term resistance and a break higher would target 20.25/30. Above the next barrier could be located at 20.50. On the flip side, a consolidation under 19.90 could ease the negative tone for the MXN. Below, support levels might lie at 19.65 and 19.50.
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