USD/MXN tests last week highs as Mexican peso remains weak on EM concerns

• Mexican peso affected by EM jitters as dollar rises in Argentina, Brazil, and Turkey. 
• USD/MXN gains modestly but still heads for the highest close in almost two months. 

The Mexican peso was falling against the US dollar amid emerging market jitters. The greenback was up 4.45% against the Argentine peso, 2.10% versus the Brazilian real and 1.55% in Turkey. NAFTA talks between Canada and the US will resume on Wednesday. Comment’s from US President Trump over the weekend opened the doors to a no trilateral agreement, but left the US-Mexico deal in place. 

The USD/MXN rose earlier today to 19.28, matching last week highs but failed to break higher and pulled back to the 19.20 area. The pair is modestly higher, headed toward the strongest close since July 4. To the upside, resistance levels are seen at 19.30 (20-week moving average) and 19.50. On the flip side, supports could be located at 19.05 and 18.80/85. 

Lower growth and a slide in PMI 

Private analysts lowered growth expectation according to the Bank of Mexico survey. They see GDP growth at 2.14% (down from 2.25) for 2018 and at 2.16% (2.17% previous) for 2019. Regarding inflation, they see CPI at 4.41% by year-end and at 3.74% next year. Average consensus point to an exchange rate of 18.92 for 2018.

The IHS Markit Mexico Manufacturing PMI edged down in August to 50.7, the lowest reading in ten months. The report points out that factory orders and employment continued to rise, but in both cases, rates moderated from those noted in July and showed a renewed decline in production and above-average increases in input costs.

Pollyanna De Lima, Principal Economist at IHS Markit said: “PMI data for August highlighted a softer growth patch of the Mexican manufacturing sector, with new work, exports and employment all displaying weaker increases than recorded at the start of the third quarter. At the same time, production dipped into contraction territory. Nonetheless, the slowdown doesn’t yet ring alarm bells on growth prospects.”