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- Mexican Peso counterattacks amid resilient job market shrugs off upbeat US GDP
Mexican Peso counterattacks amid resilient job market shrugs off upbeat US GDP
- Mexican Peso (MXN) trims recent losses against the US Dollar (USD) after a weak start.
- Mexico's Unemployment Rate for September aligns with estimates, dipping to 2.9% from August's 3%.
- Banxico's Deputy Governor Jonathan Heath highlights concerns over the desynchronization between monetary and fiscal policy in 2024.
Mexican Peso (MXN) climbs against the US Dollar (USD) on Thursday, trimming some of the last two days' losses after economic data from Mexico showed the labor market remains tight, portraying a resilient economy. Across the border, the United States (US) economy reported its fastest GDP growth rate in almost two years during the third quarter, a bad sign for inflation, which could justify the US Federal Reserve (Fed) need for further tightening. The USD/MXN is trading at 18.20, down 0.66% on the day.
Mexico revealed the Unemployment Rate for September slowed compared to August’s 3% figure, and data was aligned with estimates of 2.9%, informed the National Statistics Agency, INEGI. Aside from economic data, the Bank of Mexico (Banxico) Deputy Governor Jonathan Heath said the desynchronization between monetary and fiscal policy due to the government's increasing debt in 2024 will add “noise” to the inflationary fight.
On the US front, Q3 GDP grew above expectations, while Durable Goods Orders for September more than tripled forecasts. On the other hand, Initial Jobless Claims rose above forecasts, suggesting the labor market is easing.
Daily Digest Market Movers: Mexican Peso comes back to life as the USD/MXN drops below 18.30
- Mexico’s September Unemployment Rate was 2.9%, aligned with estimates, but below August’s 3%.
- US Q3 GDP grows at an annualized rate of 4.9%, higher than the 4.2% consensus.
- Durable Goods Orders for September in the US rose 4.7% MoM, crushing forecasts of 1.5%, well above August’s 0.1% plunge.
- US Initial Jobless Claims for the week ending October 21 rose to 210K, exceeding estimates and prior week data of 208K and 200K, respectively.
- On October 24, Mexico's National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
- Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.6%.
- Earlier this week, S&P Global Manufacturing PMIs evidenced expansion in US manufacturing and service sectors during October.
- On Friday, the US will release September's Core PCE Price Index – Federal Reserve's preferred gauge of inflation – which could affect monetary policy expectations.
- The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso at the brink of further depreciation if USD/MXN climbs above 18.50
The USD/MXN upward bias remains intact, though Thursday’s price action led to a daily high of 18.42 but the pair failed to break last week’s high at 18.46, exacerbating the ongoing pullback to current exchange rates. If sellers want to re-test the psychological 18.00 figure, they must reclaim the 20-day Simple Moving Average (SMA) at 18.06. On the other hand, if the pair finds support at around 18.20, that could keep buyers hopeful of challenging October’s high 18.48, ahead of 18.50.
Mexican Peso FAQs
What key factors drive the Mexican Peso?
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
How do decisions of the Banxico impact the Mexican Peso?
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.
How does economic data influence the value of the Mexican Peso?
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
How does broader risk sentiment impact the Mexican Peso?
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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