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USD/MXN tumbles to 2-week lows on NAFTA deal

  • Mexican peso among top performers supported by NAFTA agreement.  
  • USD/MXN drops below 18.70, hits lowest since August 9.

The Mexican peso rose further following the agreement between the US and Mexico on their disputed issues in the North American Free Trade Agreement. An official announcement is expected soon. Canadian authorities are expected now to rejoin talks.  

The USD/MXN pair fell to 18.66, hitting the lowest level in 2 weeks. It was hovering around 18.70 ahead of the official announcement from the White House. The MXN opened the week higher with a bullish gap amid positive expectations over NAFTA talks. It rose further after the confirmation of the agreement.  

Levels to watch  

On Friday, it traded momentarily above 19.00 but it was rejected and today the bearish momentum intensified. A consolidation below 18.70 could clear the way to more losses with a potential target at 18.60. Below, the 18.50 zone is a key support.  

To the upside, a recovery above 18.75 could remove the negative short-term tone. Resistance levels are seen at 18.85 and 19.00. A daily close above 19.00 would signal more gain ahead.  

MXN appreciation to help anchor inflation expectations

The rally of the Mexican peso could contribute to anchor inflation expectations. “Banco de Mexico releases its quarterly inflation report Wednesday.  Inflation was a higher than expected 4.81% y/y in mid-August, still above the 2-4% target range.  Next policy meeting is October 4, and much will depend on the global backdrop then.  If the peso comes under greater pressure, another hike becomes likely in Q4″, said analysts at BBH.  

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