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- Mexican Peso treads water ahead of crucial economic figures
Mexican Peso treads water ahead of crucial economic figures
- Mexican Peso maintains a negative tone as the USD/MXN hovers below the 200-day SMA.
- Mexico's economic data will reveal inflation figures on Thursday, widely expected to rise, which could prevent Banxico from easing policy.
- USD/MXN traders are eyeing important US jobs data ahead of the important Nonfarm Payrolls on Friday.
Mexican Peso (MXN) falls on Tuesday, extending its losses against the US Dollar (USD) in the early morning North American session after the USD/MXN briefly tested the 200-day Simple Moving Average (SMA), a critical resistance level. Nevertheless, the pair retraced somewhat, though it remains trading in the green at around 17.47, gaining 0.14% on the day.
Mexico’s economic calendar remains light on Tuesday, but it will gather some pace on Wednesday, with the release of Consumer Confidence for November, after October’s data printed 46. If confidence slips below the prior month’s figure, it would be the third straight reading that Mexican households are shifting pessimistic on the economic outlook. On Thursday, the National Statistics Agency, known as INEGI, will reveal inflation for November, with most economists expecting a higher rate than in October. That could prevent the Bank of Mexico (Banxico) from easing policy, despite recent comments by Governor Victoria Rodriguez Ceja and Deputy Governor Heath.
Aside from this, the Mexican currency remains stressed as market sentiment turns sour. The financial markets narrative suggests traders had become overly optimistic about rate cuts by the Federal Reserve (Fed). Market participants are awaiting a tranche of US labor data. On Tuesday, the JOLTs report is expected to show the jobs market remains tight, followed by Wednesday’s ADP Employment Change and Thursday’s jobless claims, ahead of Friday's crucial Nonfarm Payrolls report.
Daily digest movers: Mexican Peso remains weak as traders await Mexico’s inflation report
- Banxico revised economic growth upward from 3% to 3.3% for 2023 and projects the economy will rise 3% in 2024, from 2.1% previously forecast.
- Regarding inflation prospects, the Mexican central bank foresees headline inflation at 4.4% in Q4 2023 (5.3% for core), while at the end of 2024, it is estimated at 3.4% (3.3% for core). The central bank forecasts headline and core inflation not to hit the 3% target imposed by the institution until 2025.
- The Federal Reserve's favorite inflation gauge in October, the Core PCE Price Index rate softened from 3.7% to 3.5% YoY. Moreover, headline PCE inflation dropped from 3.4% to 3.0% YoY for the same twelve-month period.
- On November 27, Banxico’s Deputy Governor, Jonathan Heath, commented that core prices must come down more, adding that one or two rate cuts may come next year, but “very gradually” and “with great caution.”
- Mexico's annual inflation increased from 4.31% to 4.32%, while core continued to ease from 5.33% to 5.31%, according to data on November 23.
- A Citibanamex poll suggests that 25 of 32 economists expect Banxico's first rate cut in the first half of 2024.
- The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
- The same survey revealed that economists foresee headline annual inflation at 4.00% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024
Technical Analysis: Mexican Peso weakens further, as the USD/MXN hovers around the 200-day SMA
The USD/MXN popped and printed a three-week high of 17.56, piercing the 200-day SMA at 17.56, before retracing below the 17.50 area, with bulls taking a breather, as volatility continues to pick up. A decisive breach above the 200-day SMA could open the door to challenging the 50-day SMA at 17.69, ahead of the May 23 swing high at 17.99.
On the other hand, if the exotic pair fails at the 200-day SMA, that could pave the way to challenge the 100-day SMA at 17.37. The next demand zone would be the December 4 daily low of 17.16
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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