Mexican Peso gains traction against US Dollar amid risk-on mood, dovish Fed rhetoric

• Mexican Peso contains the USD/MXN below 18.00, helped by a lack of escalation in the Middle-East conflict.
• Peso is more likely to be influenced by US economic data as Mexico’s calendar is light.
• Dovish stances from Fed officials, including Austan Goolsbee and Patrick Harker, weigh on the US Dollar.

Mexican Peso (MXN) registers solid gains against the US Dollar (USD) on Monday due to the Greenback softening on an improvement in risk appetite. Federal Reserve (Fed) officials in the United States (US) remain dovish while manufacturing activity reported by the New York Fed showed a deceleration in the region, further weighing on the Dollar. The USD/MXN is exchanging hands at around 17.97, down 0.64%.

Mexico’s economic docket is light and will feature Retail Sales for August on October 20. Over the weekend, developments calmed tensions in the Middle East conflict between Israel and Hamas tempering investors' mood. US Secretary of State Anthony Blinken’s visit helped prevent an escalation in rising tensions. One of these included a possible involvement of Iran in the conflict, which had triggered a slight jump in Oil prices, underpinning the emerging market currency, but rumors the US could ease sanctions on Venezuela’s Oil spurred a downtick in Western Texas Intermediate (WTI) Crude Oil. Consequently, the USD/MXN ticked slightly higher, bouncing from daily lows of 17.90.

Aside from this, the Chicago Fed President Austan Goolsbee and Philadelphia Fed Patrick Harker remained dovish amid a busy week for Fed policymakers. In other data, the New York Empire State Manufacturing Index for October plunged compared to September’s data, but it came above expectations as new orders dipped, while fewer companies indicated higher prices received, a sign of deflation in the economy.

Daily Digest Market Movers: Mexican Peso appreciates amid speculation of no further Fed rate hikes

• New York Fed Empire State Manufacturing Index for October plunged to -4.6, higher than forecasts of -7, but worse than September’s 1.9 expansion.
• Philadelphia Fed President Patrick Harker commented the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.
• Chicago Fed President Austan Goolsbee said the fall in US inflation is not a bleep, according to the Financial Times.
• In October, the University of Michigan's Consumer Sentiment came at 63, below estimates of 67.2 and beneath the previous month's 68.1.
• Inflation expectations for one year rose from 3.2% to 3.8%, while for five years jumped to 3% from 2.8%.
• Mexico's Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
• Monthly, IP in Mexico rose 0.3% as expected but trailed the previous 0.5% reading.
• The US Consumer Price Index increased 3.7% YoY in September, unchanged from August but above forecasts of 3.6%.
• US core CPI dipped as expected to 4.1% from 4.3% in August.
• Initial Jobless Claims in the US for the week ending October 7 came at 209K, below forecasts of 210K.
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
• The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso hovers around 18.00, USD/MXN sellers eye the 200-day SMA

The Mexican Peso is staging a comeback but remains at risk of depreciating further if USD/MXN sellers reclaim the 200-day Simple Moving Average (SMA) at 17.75. If broken this major SMA could extend the pair’s losses towards 17.50. On the other hand, if the exotic pair exchange rate remains above the psychological 18.00 figure, that could pave the way for further upside, with buyers targeting last Friday’s high of 18.10 before prices climb towards the October 10 high of 18.30.