MEXICO: MXN Still Supported By Domestic Recovery, Trade Stabilisation Risks
Oct-13 11:06
- The Mexican peso is trading on a more positive footing on Monday, as the worst fears of a major escalation of China-US trade tensions have eased for now. USDMXN is down ~0.6% below the 18.50 handle, unwinding around half of Friday’s rally when Trump threatened a massive increase in China tariffs.
- The latest volatility is a reminder of the peso’s sensitivity to uncertain trade developments amid ongoing trade talks. Nonetheless, there is room for some optimism given more constructive comments from the US and China that the current trade issues can be resolved.
- This also comes after Mexico’s Lower House of Congress said last week that it will pause the discussion of the government’s proposed tariffs on Chinese and other Asian imports until late November to ensure that the plan is carefully considered. This keeps open the door to a negotiated settlement on the threat to impose tariffs of as much as 50% on some Chinese imports.
- Greater trade certainty would provide a more favourable backdrop for the peso in the medium term, which also stands to benefit from a gradual recovery in domestic activity on the back of continued Banxico rate cuts. While Banxico is expected to deliver further 25bp cuts at its two remaining meetings this year, it is likely to do so in conjunction with Fed rate cuts, thus sustaining the carry buffer.
- A domestic recovery and more stable external backdrop would support a resumption of the downtrend in USDMXN, with scope seen for a move towards 18.1837, the 61.8% retracement of the Apr 9 ‘24 - Feb 3 bull leg, ahead of the 18.000 handle. Resistance to watch is the 50-day EMA, at 18.5448, which was pierced on Friday. A clear break of the EMA would undermine the current bearish cycle and signal scope for a stronger corrective recovery.
- While less undervalued than some reginal peers, the peso is still positioned to benefit from a supportive environment for EM carry. Goldman Sachs recently noted that the risk-reward for MXN longs looks more attractive if US recession risk pricing declines further and investors focus on reacceleration risks.
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AUSSIE 3-YEAR TECHS: (U5) Bounces Further Off Support
Sep-12 21:45
- RES 3: 97.190 - High May 5 2023
- RES 2: 96.932 - 76.4% of Mar-Nov ‘23 bear leg
- RES 1: 96.860 - High Apr 07
- PRICE: 96.550 @ 15:36 BST Sep 12
- SUP 1: 96.430/95.900 - Low Sep 3 / Low Jan 14
- SUP 2: 95.760 - Low 14 Nov ‘24
- SUP 3: 95.480 - Low Jan 11 2023 and a major support
Aussie 3-yr futures are trading off recent lows. A resumption of gains from here would further narrow the gap with resistance at 96.730, the Sep 17 ‘24 high, leaving 96.860 as the next key level. Any continuation lower would instead strengthen a bearish threat. This would refocus attention on 95.760, the 14 Nov ‘24 low. Conversely, a reversal higher would open 96.860, the Apr 7 high.
FED: MNI Fed Preview-September 2025: A Reluctant Return To Easing
Sep-12 21:16
We've published our preview of the upcoming FOMC meeting - Download Full Report Here
- The Federal Reserve is set to resume its easing cycle at the September 16-17 meeting with a 25bp cut to the funds rate range to 4.00-4.25%.
- The decision to cut after a 5-meeting pause was well-telegraphed by Chair Powell, whose Jackson Hole speech described a “shifting balance of risks” toward a weaker labor market that “may warrant adjusting our policy stance”.
- The updated quarterly projections aren’t likely to bring many changes to the macroeconomic variables, but as usual the signal sent from the Fed rate “Dot Plot” will garner attention. A Committee split between expecting one or two further cuts this year is likely, keeping each of the remaining meetings of 2025 “live”.
- The Statement will downgrade the description of the labor market to reflect a rise in the unemployment rate and poor payrolls growth, and is likely to include at least one dissent to the rate decision.
- But with a Committee that is fairly divided on the way forward, Powell will be noncommittal on future action, reiterating that policy is not on a preset course, and upcoming decisions will be data-dependent.
- A key undercurrent is an increasingly activist approach to Fed personnel management from the White House, which leaves the composition of the FOMC uncertain not just over the medium-term but also at this meeting.
MNI’s separate preview of sell-side analyst summaries to follow on Monday Sep 15
RATINGS: Fitch: France Cut To A+ From AA, Portugal Up To A From A-
Sep-12 21:07
Fitch has downgraded France's sovereign rating to A+ (with stable outlook) from AA-. Release here.
- Among other factors in the decision, Fitch cites "High and Rising Debt Ratio", "Political Fragmentation Hinders Consolidation", "Weak Fiscal Record", "High 2025 Deficit", "Uncertain Fiscal Consolidation Path", and "Fiscal Rigidities".
- In "Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade", Fitch cites "Public Finances: A sustained increase in government debt/GDP over the medium term, due to failure to implement fiscal consolidation measures and/or a persistent increase in financing costs" and "Macro: Materially lower economic growth prospects and weakened competitiveness." Conversely, potentially leading to positive ratings action would be "Public Finances: Confidence that government debt/GDP will be put on a downward trajectory over the medium term, for example, due to fiscal consolidation and/or stronger economic growth".
- Fitch also raised Portugal to A (stable outlook) from A-, while elsewhere, S&P raised Spain to A+ (stable outlook) from A.
- As MNI wrote earlier, we expected France to be downgraded to A+ and Portugal to be upgraded to A.
