25/10/24

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The recovery of the Mexican Peso is encountering obstacles as political uncertainties linked to the upcoming US presidential election and developments in Mexico’s judicial reforms weigh on its performance. Recent trading trends show the USD/MXN exchange rate stalling near the significant 20.00 level, indicating a potential shift to a new upward trajectory.

Political instability is a key factor affecting the Peso, particularly the rising probability of Donald Trump securing the Republican nomination and possibly winning the presidential race on November 5. Polling data suggests a competitive landscape, with Trump recently gaining a slight edge in battleground states. Models from prominent political analysis platforms reflect a nuanced picture, showcasing tight margins between candidates while also indicating that betting platforms favor Trump, further heightening uncertainty for Mexican markets.

Such a victory for Trump could lead to adverse economic consequences for Mexico, particularly given his past remarks on imposing severe tariffs on imports from Mexico, especially automobiles. The Mexican economy has increasingly relied on manufacturing goods for the North American market under the existing trade agreements with the US and Canada. A shift in trade policy could therefore significantly impact demand for the Peso and challenge the stability of Mexico’s economy.

In addition to external pressures, developments within the Mexican parliament are contributing to the Peso’s difficulties. Recently, debates over a proposed ruling aimed at limiting the judiciary’s power have sparked significant unrest among opposition lawmakers. Critics of the ruling argue that it threatens the balance of power in the government, while supporters contend it is necessary to address perceived judicial biases. If enacted, this change could dampen investor sentiment, leading to decreased capital inflows and slower economic growth.

Technically, the USD/MXN appears to be preparing for another upward movement. Current trends indicate a bullish position amidst a rising channel, further supported by the formation of a potential bullish pattern. Should momentum continue, the exchange rate could target levels above 20.29, reinforcing the notion of an ongoing uptrend in the near term.