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- Mexican Peso softens, hitting three-day low against the US Dollar
Mexican Peso softens, hitting three-day low against the US Dollar
- Mexican Peso registers loss of more than 0.20% on Wednesday amid risk-off impulse.
- Banxico’s potential rate cut for Q1 2024 in danger as Mexican inflation rises.
- USD/MXN traders prepare for Thursday’s US inflation data.
The Mexican Peso (MXN) extended its losses for two straight days against the US Dollar (USD) during the North American session as USD/MXN buyers stepped in and lifted the exchange rate past 17.00 to reach a daily high of 17.02. At the time of writing, the exotic pair is trading at 16.99, gaining 0.32%.
Mexico’s economic docket remains scarce, though it revealed that Gross Fixed Investment improved in October. The latest inflation report in Mexico was mixed as core inflation cooled while headline inflation advanced. Given the fact that two Bank of Mexico (Banxico) officials expressed their intentions of easing policy toward the end of Q1 2024, prices remain elevated, which might deter Banxico from cutting rates.
Daily digest market movers: Mexican Peso gives way against US Dollar amid mixed Mexican data
- Mexico’s Gross Fixed Income rose 1.9% MoM in October, exceeding September’s -1.5% plunge, while annually-based figures exceeded forecasts of 22.8%, coming at 25.5%.
- The economy in Mexico is facing several challenges as inflation data was mixed alongside consumer confidence showing signs of deterioration. Elevated prices and a deceleration in economic growth could weigh on the Mexican Peso and cause its depreciation.
- Even though the latest Banxico meeting minutes indicate the central bank might consider easing policy, December’s inflation report might prevent the central bank from relaxing policy.
- On Tuesday, Mexico’s Consumer Price Index (CPI) rose by 4.66% YoY in December, exceeding forecasts of 4.55%.November’s print was 4.32%. Core figures came at 5.09% YoY, less than the consensus, and the previous month’s 5.15% and 5.30%, respectively.
- Consumer Confidence in Mexico deteriorated in December as households remained concerned about the future economic outlook.
- On January 5, a Reuters Poll suggested the Mexican Peso could weaken 5.4% to 18.00 per US Dollar in 12 months from December.
- Federal Reserve officials expressed that interest rates should remain at current levels. Fed’s Bostic emphasized that policy needs to stay tight, while Fed’s Bowman added that policy is sufficiently restrictive.
- The US economy continues to paint a mixed economic outlook as the latest US jobs data was mixed, while business activity in manufacturing contracted and the service sector deteriorated. Although a soft-landing scenario looms, the chance of a mild recession has increased, so caution is warranted.
Technical analysis: Mexican Peso is on the backfoot after reaching a three-day high above 17.00
The USD/MXN remains bearishly biased, though it briefly tested the 17.00 figure but was quickly rejected. The spot price is aimed toward the 16.97 area. If buyers achieve a daily close above the latest cycle low seen on November 27 at around 17.03, that could open the door for further gains. On further strength, the pair could test the 17.20 mark, followed by the 50-day Simple Moving Average (SMA) at 17.24, ahead of challenging the confluence of the 100 and 200-day SMAs at around 17.40
On the other hand, If sellers prevent the exotic pair from piercing the 17.00 figure, a test of last year’s low is on the cards. But sellers must conquer the 16.80 area, followed by the August 28 swing low of 16.69 ahead of the 2023 low of 16.62.
USD/MXN Price Action – 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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