Urzua Leaves Over Presidential Clashes
It’s been a volatile week for the Mexican peso. The currency cratered lower yesterday in response to the shocking resignation of the country’s finance minister Carlos Manuel Urzua Marcias.
In a story similar to that of Turkish president Erdogan firing the head of the CBRT, the finance minister had reportedly clashed with Mexico’s left-leaning president Andres Manuel Lopez Obrador. The dispute was over “economic discrepancies” as well as the “imposition of officials that have no knowledge of public finance”.
Urzua Notes “Discrepancies”
In his resignation letter, Urzua wrote:
“There were many discrepancies in economic matters… I am convinced that all economic policy should be carried out based on evidence, taking care of the different effects it can have and free from all extremism, be it from the right or left.”
Mexican Fiscal Credibility in Question
This episode could prove a sharp blow to MXN capital inflows. Banxico credibility and high implied yields of over 8% have been attracting increased levels of foreign capital recently with investors looking to take on MXN exposure. However, the resignation has cast heavy doubts over the credibility of Mexico’s fiscal management.
MXN Recovers as Herrera Appointed as Replacement
The Mexican administration looked to soften the blow by appointing deputy finance minister Arturo Herrera as Urzua’s replacement. Herrera is known for his technical capacity and market-friendly views.
In his first news conference as finance minister, he told reporters that he does not see an impending recession in Mexico. This is despite economic growth having contracted 0.2% in Q1 2019.
Herrera’s appointment worked to offset some of the concern in the market. USDMXN conceded around one-third of its prior gains.
Moody’s Concerned Over Mexican Economy
However, despite Herrera’s appointment, ratings agency Moody’s has expressed concerns over the Mexican economy.
“We expect investor uncertainty with regards to economic policy management to persist. This is in line with the views that led us to assign a negative outlook on Mexico’s sovereign rating earlier this year,”
The H1 chart shows the scale and severity of the move lower in MXN. USDMXN moves from sub 18.9112 to well above the 19.2731 resistance level. Price has since retraced somewhat and has now settled below the level. However, it remains above the 19.0788 broken highs. Therefore, focus is now on a further grind higher.