Mexican Peso Price Drops on Fitch Downgrade, Australian Dollar at Risk

Mexican Peso, USD/MXN, Australian Dollar, Wall Street, Retail Sales – Asia Pacific Market Open

• Mexican Peso sinks on Fitch ratings downgrade, USD/MXN eyes resistance

• Dow Jones sinks but selling pressure ebbed despite dismal US retail sales

• Asia Pacific stocks may weaken. Australian Dollar may fall, eyeing jobs data

Mexican Peso Sinks as Fitch Downgrades Credit Rating, Australian Dollar Weakens

The Mexican Peso fell over one percent against the US Dollar after Fitch downgraded Mexico‘s credit rating to ’BBB-‘ from ’BBB‘. This is one notch above non-investment grade which places the nation on the precipice of junk status. The outlook remained stable however. Mexico’s economy, like most nations, is under pressure as growth, trade and output slows amid the coronavirus. Its top trading partner, the US, is no exception.

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USD/MXN - broadly speaking - was already aiming higher prior to this announcement due to the pessimistic shift in financial markets on Wednesday. The Dow Jones and S&P 500 closed -2.20% and -1.86% to the downside respectively. Taking a look at currencies, the haven-linked US Dollar and anti-risk Japanese Yen soared. The growth-oriented Australian Dollar and similarly-behaving Canadian Dollar weakened.

Most of the losses in equities occurred during the Asia Pacific and European trading sessions. During North American hours, downside momentum appeared to fade despite dismal US retail sales data. The -8.7% m/m decline in March was the worst on record and is worrying news from the worlds largest economy. This is because consumption is the largest component of GDP at about two-thirds.

In short, the longer the duration of social distancing measures and as businesses stay closed, the harsher the anticipated recession could be. Yet, this does raise the question of whether or not the nation could need further stimulus. As the onslaught of worse-than-expected data continues, policymakers may prescribe further relief measures. This could be why stock markets have generally risen broadly this month.

Thursdays Asia Pacific Trading Session

Prior to Thursdays Asia Pacific trading session, US President Donald Trump continued to hint that the nation may be heading to a sooner-than-anticipated easing of social distancing measures. He said that the data suggests the country “passed the peak on new cases”. Despite this, Wall Street futures are pointing notable lower. If local conditions are improving, that may lessen the scope for further stimulus.

Should APAC shares follow US stocks lower, the Australian Dollar could be at risk. AUD/USD is also closely eyeing the upcoming Australian jobs report. Overnight implied volatility for the pair is at its highest point this month. A softer-than-expected outcome may compound selling pressure in the Aussie, but down the road the currency may stay focused on the broader trend in equities.

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Mexican Peso Technical Analysis

USD/MXN has bounced off rising support which can be traced back to March – pink line on the 4-hour chart below. This also follows the emergence of positive RSI divergence as the pair broke above near term falling resistance from early April – red line below. This places USD/MXN facing the former inflection point from the middle of last month which could make for a range of resistance between 24.4068 to 24.6432.

USD/MXN 4-Hour Chart

Chart Created Using TradingView