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Mexico's inflation rises complicating Banxico's efforts further

USD/MXN is attempting to breach above the 18.05 handle after Mexico's Inflation rose more than expected to 4.98% y/y in Jun from 4.69% y/y prior (f/c 4.87% y/y), with m/m figures rising to 0.38% from -0.19% (f/c 0.29%). Still, Core Inflation fell more than expected to 4.13% y/y from 4.21% y/y, with m/m data rising to 0.22% from 0.17% (f/c 0.23%). Bi weekly CPI rose, while Bi weekly Core eased. The mixed data highlights how underlying inflationary pressures remain, complicating Banxico's efforts further as they try to cut their interest rate that remains near an all time high.

Oxford Economist CAMACHO voiced that "the worry now shouldn't be general inflation. The fact that core inflation has been slowing, even if at a lower rate, should be enough of a positive sign for Banco de Mexico. The bank should be focused on services inflation" (via Bbg).

Elsewhere, report show that the selloff in BRL over the past month has been shielding farmers in the world s top soybean exporter from this year s price plunge, giving them an edge over US rivals. The Real has lost 11% against the dollar this year mainly due to risks surrounding the nation s budget gap. That in turn brings about that much more revenue for soybeans than in 202, and the decline in the cyy has encouraged farmers to boost sales, deepening a rout in benchmark prices that s eroded revenue for American peers.

Because Brazil is the world s largest crop exporter, the fluctuations of its ccy play a key role in the agricultural markets. A weaker BRL means farmers can better withstand lower commodity prices which are mainly denominated in dollars than their US counterparts. That would typically encourage exports from the region, putting downward pressure on futures contracts traded in places such as Chicago and New York.

Amius Ltd's MARTINS expressed that Brazilian farmers sold more than 4 million metric tons of soybeans in the five days ended July 5, the most for a similar period since October 2020, after the currency plunged to its weakest level in more than two years against the dollar. He added that this is this is bad news for US exporters, and that the currency boost may give Brazilian farmers a competitive advantage lasting well into 4Q, shortening the period in which US suppliers typically have the upper hand (via Bbg).

USD/BRL fell to a session low of 5.4594 at the open.

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