Canadian, Mexican Currencies Rise on ISM

By Marc Chandler

The Canadian dollar (CAD) and Mexican peso (MXN) have benefited from the better-than-expected U.S. manufacturing report from the Institute for Supply Management and from the risk-on trading environment.

The strong gains in the Canadian dollar come even though a Bank of Canada rate hike at the Sept. 8 meeting seems less likely given the string of disappointing Canadian data, doubts about the U.S. recovery and the pullback in commodity prices. Such a hike had been fully discounted by the market.

The Mexican peso (MXN), which Tuesday posted one of its lowest closes for the year, rallied strongly Wednesday. The more-than-1% gain comes despite some comments from a Moody's analyst warning that Mexico's security issues and the vulnerability of its oil revenue ($50 a barrel cited) may jeopardize its rating.

Initial support for the dollar comes in near 1.0440 Canadian dollars, which corresponds to a retracement objective and 20-day moving average. Initial support for the greenback against the Mexican peso comes in in the 12.97 MXN to 13.0 MXN range.

Although Mexican and Canadian equities have outperformed the U.S. stock market this year, today it is the U.S. that outperforms. On the other hand, U.S. and Canadian bonds are selling off hard (10-year yields are up 10-13 basis points), while Mexico's global bond (dollar denominated) is up a single basis point.

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