USD/MXN ascends amidst strong US retail sales data, economy’s resilience

• US Retail Sales for July surpass expectations, buoyed by Amazon’s Prime Day, pushing core sales up by 1%.
• New York Fed’s Manufacturing Index sees a surprising dip, while Kashkari comments on inflation concerns and economic resilience.
• Despite the Greenback’s strength, interest rate differential may limit USD/MXN’s rally, with risk aversion playing a potential role.

USD/MXN climbs in the North American session by more than 0.40% as the Greenback stages a recovery, spurred by solid economic data from the United States (US) igniting rate jitters. Hence, the USD/MXN advanced to new weekly highs, exchanging hands at 17.1181.

Greenback’s rally spurred by robust Retail Sales and rate hike expectations; USD/MXN eyes stability above 17.0000

Market sentiment remains downbeat, as reflected by Wall Street printing losses. Retail Sales in the US exceeded estimates of 0.4% on a monthly basis, with July sales expanding by 0.7%, propelled by Amazon’s Prime Day. Excluding Autos, also called core retail sales, jumped  1%, crushing estimates of 0.4%. Core Retail Saeles correspond most closely with the Gross Domestic Product (GDP) consumer spending component.

Other data from the US Department of Labor showed that Import and Export Prices rose above estimates. At the same time, the New York Federal Reserve revealed its Manufacturing Index plunged to -19, exceeding projections of -1, after business conditions improved in July.

In the meantime, US Treasury bond yields paired their earlier gains, with the US 10-year Treasury note yield standing at 4.187% after touching a high of 4.274%, while the US Dollar reversed some of its earlier gains. The US Dollar Index (DXY), which tracks the buck’s performance against a basket of rivals,

In the meantime, Minnesota’s Fed President Neil Kashkari is crossing the wires, expressing he feels that inflation is still too high, despite feeling good about the progress while noting uncertainty about whether the Fed has done enough or needs to do more. He added US central bank officials are surprised by the economy’s resilience.

Even though market participants remain skeptical about another rate hike by the Fed, expectations stay at 32.2% for November’s monetary policy meeting, higher than a week ago’s 28% chances.

Given the backdrop, the USD/MXN might remain above the 17.0000 price level; even though the Mexican Peso (MXN) has been under pressure, the interest rate differential benefits the emerging market currency. That would put a lid on USD/MXN’s rally, and if the pair is to edge higher, it could do it steadily unless risk-aversion triggers outflows from riskier assets.

USD/MXN Price Analysis: Technical outlook

As of writing, the USD/MXN spot price is above the 20 and 50-day Exponential Moving Averages (EMAs), each at 17.0171 and 17.1234, which could pave the way for further upside. Even though it looks like the exotic currency pair achieved a bottom, USD/MXN buyers must reclaim the May 17 daily low-turned resistance at 17.4038, which could pave the way to test the 100-day EMA at 17.4605 before challenging 17.5000. Otherwise, further downside is expected below the psychological 17.0000 level, with the year-to-date (YTD) low lingering around 16.6238.