Mexican Peso gives back gains made vs. USD after Nonfarm Payrolls data misses expectations

The Mexican Peso (MXN) weakens aginast the USD on Friday, giving back all the gains it made against the Greenback following the release of US Nonfarm Payrolls. 

Mexican Peso rises versus the USD after Nonfarm Payrolls report

The Mexican Peso rises then falls in a volatile yo-yo against the US Dollar (USD) on Friday following the release of US Nonfarm Payrolls data. 

Initially MXN rose almost a half of a percent versus USD, to the 16.80s immediately after the release, which showed US Nonfarm Payrolls missing analysts estimates. However, these gains were soon handed back as the Dollar ecouped most of its losses. 

The US NFP report showed 175K new workers joined the ranks of the employed in April, which was below ther 243K expected and the upwardly-revised 315K of the previous month, according to data released by the Bureau of Labor Statistics. 

Average Hourly Earnings came in softer at 3.9% YoY and 0.2% MoM, compared to estimates of 4.0% and 0.3%. This was also lower than the 4.1% and 0.3% of the previous month.

The slight decline in the pace of earnings growth suggests lessening inflationary pressures. This in turn may increase the chances that the Federal Reserve (Fed) will cut interest rates sooner than anticipated. The expectation of lower interest rates weighs on the US Dollar (USD) as it reduces capital inflows, and the US Dollar Index (DXY) fell over half a percent after the release.  

Other data in the NFP report showed that Average Hours Worked fell to 34.3 from 34.4 previously and the same expected, probably reflecting an increase in part-time work, usually interpreted as negative by economists. 

The Unemployment Rate ticked down to 3.9% from 3.8% previously when no change had been forecast. The participation rate remained the same at 62.7%. 

USD/MXN is trading at 16.98, EUR/MXN at 18.27 and GBP/MXN at 21.29, during the US session. 

Mexican Peso temporarily weakens after release of Manufacturing PMI 

The Mexican Peso weakened temporarily on Thursday after the release of the S&P Global Manufacturing PMI for Mexico. The survey of purchasing managers in the Manufacturing sector showed a fall to 51.0 in April, down from 52.2 in March and 52.3 in February. It was the third monthly decline in a row, although the metric remains in expansive territory (above 50) – and at historic highs for the Index.  

Fierce competition from rival firms in China and weak overseas demand were seen as major factors in the slowdown. 

“A renewed fall in production volumes is a strong indication of how detrimental competitive conditions and weak international sales were to Mexican manufacturers at the start of the second quarter,” said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

The fall in overseas demand was offset to a certain degree by continued robust domestic demand.

“Mexico’s domestic market fared better in comparison, neutralizing the weakness in overseas demand. Total new orders rose for the third consecutive month in April, amid

reports of successful advertising, demand resilience and the upcoming elections,” the report said. 

Inflation absorbed

Although respondents in the PMI survey reported a rise in the cost of components, manufacturers on the whole absorbed the rise themselves, keeping prices of finished goods stable.

“Input price inflation remained elevated, but manufacturers kept prices charged from customers broadly unchanged amid ongoing efforts to secure new work,” noted Pollyanna de Lima. 

Also on Thursday, Business Confidence for Mexico’s industrial sector fell to 54.2 from an upwardly revised 54.4 in March, according to data from INEGI.  

Foreign Exchange Reserves held by Banxico remained unchanged at $220B in March, and Mexico’s fiscal balance showed a widening of the deficit to $437.2B, according to the Secretaría de Hacienda y Crédito Público. 

In a poll of private analysts, headline inflation was expected to rise to 4.20% in 2024, up from the March estimate of 4.10%, revealed Banxico.

Technical Analysis: USD/MXN in sideways short-term trend 

USD/MXN continues its short-term sideways trend, oscillating between the parameters of a range with a floor at 16.86 and a ceiling at 17.40. 

USD/MXN 4-hour Chart 

The pair is currently trading close to the range lows. 

Given the established sideways trend is tipped to continue, the next move will probably be a leg back up towards the range highs. 

The pair formed a bullish Japanese Hammer candlestick reversal pattern (circled) on Thursday which could mark the beginning of the new up leg within the range, however, it is still early to say with any confidence and candlesticks are only very short-term signals. 

The Moving Average Convergence Divergence (MACD) indicator is poised to cross above its signal line offering a buy signal and potentially adding weight of evidence to the bullish Hammer. 

More upside could take the USD/MXN up to the 50 Simple Moving Average (SMA) on the 4-hour chart at 17.07, followed by the lower high at 17.15. A clear break above the zone of resistance around 17.15-17.18 might see further gains up towards the range highs again. 

A decisive breakout of the range – either below the floor at 16.86, or the ceiling at 17.40 – would change the directional bias of the pair. 

A break below the floor could see further downside to a target at 16.50, followed by the April 9 low at 16.26.

On the other side, a break above the top would activate an upside target first at 17.67, piercing a long-term trendline and then possibly reaching a further target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green or red daily candlestick that pierces above or below the range high or low, and that closes near its high or low for the period; or three green/red candlesticks in a row that pierce above/below the respective levels.