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- Mexican Peso remains steady against US Dollar amid mixed US economic data
Mexican Peso remains steady against US Dollar amid mixed US economic data
- Mexican Peso is stable against US Dollar as US jobs data improves, but housing paints mixed outlook.
- Drop in US unemployment claims indicates the economy remains resilient, strengthening US Dollar.
- USD/MXN traders await further Fed speakers, Mexico’s Retail Sales on Friday.
The Mexican Peso (MXN) is virtually unchanged against the US Dollar (USD) after a tranche of mixed economic data from the United States (US) and traders paring rate cut bets on the Federal Reserve (Fed), which is keeping the Greenback (USD) bid across the board. The USD/MXN trades at 17.18 on the day after hitting a daily low of 17.15, up 0.07%, following a slide below the 50-day Simple Moving Average (SMA).
The US Bureau of Labor Statistics (BLS) revealed that unemployment claims for last week grew at a slower pace than the previous reading and expectations. The print portrays a tight labor market. Meanwhile, the US Department of Commerce (DoC) released Housing Starts and Building Permits data, which came in mixed, failing to keep the USD/MXN in positive territory. Ahead on Thursday, Atlanta Fed President Raphael Bostic’s comments will cross the newswires.
Daily digest market movers: Mexican Peso stays firm despite mixed US economic data
- The latest Initial Jobless Claims report for the week ending January 12 revealed a decrease to 187,000, lower than both the previous week's numbers and the anticipated consensus of 207,000. This suggests that the labor market remains tight.
- Regarding the labor market, the Federal Reserve's latest Beige Book, released on Wednesday, presented a more nuanced picture, reporting that “nearly all districts cited one or more signs of a cooling labor market,” indicating some emerging signs of a slowdown in employment growth across various regions.
- US housing data presented a mixed picture recently. Building Permits saw an increase of 1.9% and reached 1.495 million, compared to 1.467 million in November and surpassing the forecast of 1.48 million. On the other hand, Housing Starts experienced a decline, dropping from 1.525 million in November to 1.46 million in December, a contraction of -4.3%.
- The strongest catalyst in the week has been Federal Reserve Governor Christopher Waller’s speech: “no reason to move as quickly or cut as rapidly as in the past.” This kept investors in check despite supporting rate cuts if inflation indeed gets lowered.
- Besides that, December’s Retail Sales report and Industrial Production have fueled speculation that the US economy would likely grow by 2.4% in Q4 2023 as shown by the Atlanta GDPNow model. This spurred a reaction by fed funds rate (FFR) traders, who trimmed rate cut bets for 2024 from 175 basis points to just 150.
- The lack of data in Mexico keeps traders leaning on the latest inflation figures, which edged higher than expected in headline inflation, but core data suggests the Bank of Mexico (Banxico) has done a good job, curbing elevated prices after hiking rates toward 11.25%.
- Although December’s meeting minutes from Banxico (the Central Bank of Mexico) suggest that the central bank might contemplate easing its monetary policy, the inflation report for December could hinder any move toward policy relaxation.
- Analysts at Standard Chartered noted, “We expect the policy rate to be lowered to 9.25% by end-2024, although an official downward revision in the output gap could open the door for more aggressive rate cuts.”
- On January 5, a Reuters poll suggested the Mexican Peso could weaken 5.4% to 18.00 per US Dollar in the 12 months following December.
Technical analysis: Mexican Peso stays firm as USD/MXN meanders around 17.20
The USD/MXN daily chart remains neutral to upward biased, but failure to decisively break the 200-day SMA (Simple Moving Average) at 17.37 exacerbated a pullback below the 17.20 area. A breach of the 50-day SMA at 17.17 would pave the way to challenge the January 12 low of 16.82. Further downside is seen at the January 8 low of 16.78. Once those levels are hurdled, the next demand level would be the August 28 cycle low of 16.69, ahead of last year’s low of 16.62.
On the other hand, if buyers reclaim the 17.20 area, that could open the door to test the 200-day SMA at 17.37. Once surpassed, the next resistance emerges at the 100-day SMA at 17.41, ahead of the December 5 high at 17.56, before testing the May 23 high of 17.99.
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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