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- Mexican Peso treads water after Mexico Retail Sales beat expectations
Mexican Peso treads water after Mexico Retail Sales beat expectations
- The Mexican Peso is middling on Wednesday but keeping close to the top end.
- Mexico's October Retail Sales came in better than expected.
- US Dollar flows helping to prop up MXN despite a dovish Banxico.
The Mexican Peso (MXN) is holding in place, pinned into recent highs against the US Dollar (USD) as broad-market selling pressure keeps the Greenback in place and gives the Peso a chance to cover more ground even as a dovish Banco de Mexico (Banxico) weighs the potential for rate cuts as soon as 2024’s first quarter.
Despite both the Federal Reserve (Fed) and Banxico adopting “data dependant” stances, Mexico’s central bank is far more dovish than its US counterpart. Banxico Governor Victoria Rodriguez Ceja noted recently that Mexico’s interest rate, currently at its highest in over 15 years, could start seeing cuts as soon as 2024’s first quarter.
Banxico held its main rate at 11.25% at its December policy meeting for a sixth straight hold call, after a 15-rate hike run since first raising rates in June of 2021.
Daily digest market movers: Mexican Peso holds on the high side as markets target Greenback underbelly
- Mexico Retail Sales beat the street, rising 3.4% for the year through October versus the forecast 2.0%.
- Over the month, Mexico Retail Sales in October similarly vaulted over the forecast 0.0% to print a 0.8% gain.
- Existing US Home Sales Change showed a 0.8% improvement in November.
- US Existing Home Sales jumped from a 13-year low on a unit basis, climbing from 3.79 million to 3.82 million in November, compared to the median market expectation of a continued decline to 3.77 million.
- US Consumer Confidence also rose to 110.7 in December, compared to November’s 101.0 (revised lower from 102.0).
- Overall market tone is keeping risk appetite pinned into ‘risk on’ territory, pushing down the US Dollar and giving the MXN a slight boost.
- Thursday to see another update on Mexico´s half-month inflation in December.
- 1st half-month Mexico Inflation is forecast to pull back from 0.63% to 0.4%.
- Core Inflation for the 1st half-month is expected to see an increase to 0.48% versus the previous 0.2%.
- Thursday’s US Gross Domestic Product (GDP) print for the third quarter will dominate the calendar headlines. US third quarter GDP is forecast to be confirmed at 5.2%.
Technical Outlook: Mexican Peso holds on the top end amidst market holiday slowdown
The Mexican Peso is sticking in place against the US Dollar through the mid-week market session, with the USD/MXN testing the waters between 17.10 and 17.00. The 17.00 price level remains a major barrier, keeping the pair propped up and limiting MXN gains in the near term.
The Peso has gained nearly 3% against the US Dollar since falling from 17.56 after a rejection from the 200-day Simple Moving Average (SMA) earlier in the month.
Intraday action has been capped under the 200-hour SMA descending into 17.25, and near-term momentum is leaning firmly bearish with the 50-hour SMA slipping into 17.10, squeezing the day’s price action into a right range just above 17.02.
USD/MXN Hourly Chart
USD/MXN Daily Chart
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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