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- Mexican Peso struggles for direction on risk-off mood, dovish Banxico’s tone
Mexican Peso struggles for direction on risk-off mood, dovish Banxico’s tone
- Mexican Peso (MXN) experiences some volatility to start the week, initially rising against the US Dollar (USD) before retreating.
- Banxico's Governor Victoria Rodriguez Ceja's comments on potential rate cuts next year add pressure on the Mexican Peso.
- A risk-off impulse keeps the USD/MXN on positive territory despite overall US Dollar weakness.
Mexican Peso (MXN) loses some ground against the US Dollar (USD) early during the North American session on Monday. The USD/MXN pair reached a low of 17.60 but bounced as buyers regained control, lifting the exchange rate to 17.65, up0.04% on the day.
Mexico's economic docket is empty following last Thursday’s Bank of Mexico – also known as Banxico – decision to hold rates at 11.25% and remove hawkish comments from its statement, which weighed on the Mexican Peso. Nevertheless, the Peso trimmed some losses on Friday, but now, USD/MXN buyers are trying to break the 200-day Simple Moving Average (SMA) at 17.66. On Monday, dovish remarks by Banxico's Governor Victoria Rodriguez Ceja keep the USD/MXN trading with minuscule gains.
Daily digest movers: Mexican Peso remains range bound despite market sentiment shifting sour
- Banxico’s Governor Victoria Rodriguez commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
- Industrial production in Mexico cooled down, according to data provided by the National Statistics Agency (INEGI) on November 10. The output grew by 3.9% YoY in September, below the 4.4% forecast, trailing August’s 5.2%.
- The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
- Last Thursday’s hawkish remarks by the US Federal Reserve Chairman Jerome Powell sponsored the USD/MXN a leg up, toward 17.93, before paring some losses.
- Mexico´s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
- Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso remains steady despite Golden Cross surfacing, USD/MXN stays in the green
The USD/MXN remains neutral to upward biased, at a brisk of breaking crucial resistance levels, like the 200-day Simple Moving Average (SMA) at 17.66, followed by the 50-day SMA at 17.70. Once those two levels are breached, the next resistance would emerge at the 20-day SMA at 17.91 before buyers could lift the spot price towards the 18.00 figure.
Conversely, key support levels lie at 17.50, followed by the November 9 low at 17.47 and the 100-day Simple Moving Average (SMA) at 17.33. A loss of the latter will expose the 17.00 psychological level before the pair aims to test the year-to-date (YTD) low of 16.62.
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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