LATAM FX: COP Extends Declines, MXN Showing Relative Resilience Monday
- The bounce back for equity indices across the US session has bolstered a solid recovery for the US dollar, rather than spurring any risk tied demand for Latin American currencies. Losses across the region are being led by the Colombian peso, which now extends its intra-day decline to 1.6%, with some potential drivers noted earlier.
- Elsewhere, its MXN that is showing the most resilience, unchanged on the session, although the day’s trade has been contained within the 18.25-35 range. The lack of interest to sell the peso on bouts of risk-off and the cautious optimism surrounding US-Mex discussions may be tilting the risks firmly in favour of USDMXN breaking lower into year-end.
- Analysts continue to cite a relatively dovish Banxico and uncertainty surrounding the USMCA review as tilting the risks to the downside for the peso. However, we would argue that this is a view that has been entrenched for a while and has done little to impact MXN resilience. This is highlighted by USDMXN remaining close to cycle lows despite dollar indices remaining around 3% off their September lows.
- Whether the market has the appetite to build momentum below 18.20 remains to be seen, however, consistent dip buyers will certainly be tested on a break below the 18.00 mark as the Mexican right-tail perhaps remains underestimated.
- CIBC reiterated today that they don’t see space for a sustained USDMXN drop below 18.20, while even with Banorte’s constructive view for the MXN in 2026, they are only forecasting the USDMXN rate to end next year at 18.30.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.780 - High Jun 26 (cont)
- RES 1: 96.700 - High Sep 12
- PRICE: 96.375 @ 16:13 GMT Oct 31
- SUP 1: 96.280 - Low May 15 (cont.)
- SUP 2: 95.900 - Low Jan 14 (cont.)
- SUP 3: 95.760 - Low 14 Nov ‘24
Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
