USDMXN: Mexico GDP Contracts, Peso Whipsaws Ahead of Fed
MEXICO GDP & USDMXN – TALKING POINTS:
- USDMXN jumped higher immediately following Mexico’s GDP data release which showed the Latin American economy contracted by 0.2 percent in the first quarter
- Weaker growth across Mexico’s services sector largely contributed to the country’s deceleration in economic activity, but the Peso is holding up relatively well against the US Dollar
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Mexico released its 1Q 2019 GDP report this morning which indicated a 0.2 percent decline from the previous quarter. The headline number looks particularly disappointing considering that the economic contraction widely missed analyst expectations of 0.3 percent growth while President Andrés Manuel López Obrador predicted an aggressive growth rate of 2.0 percent for 2019.
In the World Economic Outlook and Financial Stability Report published earlier this month, however, the IMF slashed Mexico’s economic growth forecast once again to 1.6 percent. Today’s uninspiring data could potentially open the door to further downward revisions.
MEXICO GDP GROWTH PRICE CHART: QUARTERLY TIME FRAME (OCTOBER 2011 THROUGH MARCH 2019)
The decline in Mexico’s latest GDP report may have been partly due to tension flaring up between the US and Mexico over their pending USCMA trade deal recently – the ongoing uncertainty, which Mexico’s central bank previously highlighted as a risk, has likely dampened consumer sentiment, business activity and economic growth.
Also, the US released its own GDP report last week which illustrated a 1.2 percent drop in imports from Mexico. It now appears that this largely impacted Mexico’s economic growth – particularly once considering the US accounts for roughly 80 percent of Mexico’s exports.
In fact, Mexico is now the largest trading partner with the US which could be a result of the US-China Trade War. The possibility of the recent slowdown in US consumption and imports from Mexico continuing poses a threat that could materially drag down Mexico’s economy.
USDMXN PRICE CHART: 15-MINUTE TIME FRAME (APRIL 28, 2019 TO APRIL 29, 2019)
At first, USDMXN advanced steeply once the data was published but the Mexican Peso has since trimmed losses against US Dollar. Price action surrounding today’s GDP report saw the currency pair fluctuate nicely between the 1-standard deviation trading range of 18.893 to 19.096 calculated from USDMXN overnight implied volatility which was highlighted yesterday.
Greenback gains against the Peso could be dwindling due to widespread USD weakness expressed by the DXY US Dollar Index slipping nearly 0.4 percent so far today. Aside from the Euro largely dragging the US Dollar lower in response to the Eurozone’s relatively upbeat GDP report, expectations for a dovish Fed ahead of the central bank’s FOMC meeting tomorrow could be weighing negatively on USD crosses as well.
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- Written by Rich Dvorak, and Nancy Pakbaz, CFA
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.