Mexican Peso continues rising after release of hotter inflation data

• 
  The
  Mexican
  Peso
  is
  rising
  after
  the
  release
  of
  broadly
  inflationary
  data
  suggests
  interest
  rates
  might
  remain
  elevated. 
• 
  Relatively
  high
  interest
  rates
  in
  Mexico,
  at
  11.00%,
  are
  drawing
  foreign
  capital
  inflows,
  supporting
  MXN. 
• 
  USD/MXN
  has
  broken
  below
  the
  key
  June
  24
  low
  at
  17.87.  

The
Mexican
Peso
(MXN)
continues
appreciating
in
its
key
pairs
on
Wednesday
after
the
release
of
Mexican
macroeconomic
data
on
Tuesday
showed
continued
signs
of
inflationary
pressures
in
the
economy. 

An
overall
beneficial
backdrop
due
to
carry
flows
is
further
supporting
the
Peso
because
of
the
attractiveness
to
foreign
investors
of
the
relatively
high
interest
rates
on
offer
in
Mexico
(11.00%). 

The
carry
trade
is
an
operation
in
which
investors
borrow
in
a
currency
where
interest
rates
are
low
(like
the
Yen)
and
bank
the
money
in
a
currency
where
interest
rates
are
high
(like
MXN).
The
difference
between
the
interest
payments
on
the
loan
and
the
interest
paid
on
the
deposit
(or
bond)
renders
the
profit,
all
other
things
being
equal. 

At
the
time
of
writing,
one
US
Dollar
(USD)
buys
17.81
Mexican
Pesos,
EUR/MXN
trades
at
19.27,
and
GBP/MXN
at
22.81.

Mexican
Peso
recovers
on
inflationary
data

The
Mexican
Peso
is
recovering
as
investors
mull
recent
macroeconomic
data
that
showed
Mexican
inflation
broadly
rising
in
June. 

The
Headline
Inflation
rate
in
Mexico
came
out
at
0.38%
on
a
month-on-month
basis,
beating
the
0.24%
expected
by
economists
and
higher
than
the
negative
0.19%
of
May,
according
to
data
from
INEGI. 

Core
Inflation
for
June,
which
excludes
volatile
food
and
energy
components,
came
out
at
0.22%,
falling
below
the
0.24%
estimated
by
economists
but
above
the
0.17%
in
May. 

The
12-month
Inflation
rate
in
June,
meanwhile,
came
out
at
4.98%,
which
was
higher
than
the
4.84%
expected
by
economists
and
the
4.69%
previously.

The
slower
increase
in
core
inflation
could
be
critical
in
terms
of
the

outlook
for
interest
rates
in
Mexico,
according
to
investor
advisor
service
of
Capital
Economics. 

“Core
inflation
edged
down
last
month.
While
there’s
still
a
lot
of
uncertainty
around
the
next
rate
decision
in
August,
we
think
that
the
easing
of
core
price
pressures,
alongside
the
weak
run
of
activity
data
and
the
rebound
in
the
Peso
leave
an
August
rate
cut
in
play,”
says
Kimberley
Sperrfechter,
Emerging
Markets
Economist
at
Capital
Economics. 

Assuming
the
Banxico
does
go
ahead
and
cut
interest
rates
in
August,
this
could
have
a
negative
impact
on
the
Peso.  

Technical
Analysis:
USD/MXN
breaches
key
June
24
low

USD/MXN
breaks
below
the
key
June
24
line-in-the-sand
low
at
17.87. 

USD/MXN
Daily
Chart 

The
break
is
so
far
on
an
intraday
basis.
A
decisive
break
below
17.87,
would
reconfirm
the
down-trending
bias,
with
the
next
target
lying
at
17.50
(50-day
Simple
Moving
Average).

A
decisive
break
would
be
one
accompanied
by
a
long
red
candle
that
closed
near
its
low
or
three
red
candles
in
a
row
that
broke
below
the
level. 

As
things
stand,
the
short-term
trend
is
bearish,
and
the
“the
trend
is
your
friend”
adage
suggests
the
odds
favor
an
extension
lower.  

The
direction
of
the
medium
and
long-term
trends,
meanwhile,
remain
in
doubt.