Mexican Peso holds steady against US Dollar after US PPI data

• Mexican Peso trims some weekly losses as USD/MXN stays virtually unchanged.
• Mexico's Industrial Production contracts, underscoring economic challenges, while US producer prices suggest softening inflation.
• Fed officials' comments on inflation and monetary policy decisions reflect a cautious optimism.

The Mexican Peso depreciated modestly against the US Dollar for the third straight trading session on Thursday, following a red-hot consumer inflation report on Wednesday. Further economic data from Mexico and the United States (US) keeps the exotic pair within familiar levels, though the downtrend remains intact. The USD/MXN trades at 16.43, virtually unchanged.

Mexico’s economic docket featured the release of Industrial Production for February. The monthly reading missed estimates and contracted. On a yearly basis, data expanded below estimates but surpassed January’s reading.

Across the border, the release of prices paid by producers showed that inflation cooled a little but remains stickier than expected on the annual core reading. Monthly readings showed that the disinflation process continues to show success.

In the meantime, Federal Reserve (Fed) officials crossed newswires. The  New York Fed’s Williams and Richmond Fed’s Barkin mentioned that recent data was disappointing, while the Boston Fed’s Collins added that recent data argues against the imminent need to change rates.

Daily digest market movers: Mexican Peso shrugs off hot US inflation data

• Mexico’s Industrial Production edged lower in February from the previous month and shrank -0.1% MoM, below estimates of 0.3% expansion. On a yearly basis, Industrial Production rose by 3.3% compared to the last reading, but forecasts were missed by 3.5%.
• This data, combined with the recent inflation report, which is below estimates, justified the Bank of Mexico's (Banxico) March rate cut. However, not everything was positive news as the yearly CPI exceeded expectations.
• The US Producer Price Index (PPI) rose by 0.2% MoM in March, below the previous month’s reading. The core PPI clocked the same reading of 0.2% MoM, which is below estimates and February’s reading.
• For the twelve months to March, the PPI increased by 2.1%, exceeding February’s data. The core PPI printed above estimates, and the previous reading, at 2.4%, which was above estimates of 2.3% and February’s 2.1%.
• Initial Jobless Claims for the week ending April 6 arrived at 211K, below estimates of 215K and the prior’s reading of 222K.
• Thursday’s data, along with Wednesday’s US inflation report, prompted traders to price in two rate cuts by the Federal Reserve in 2024, according to the Chicago Board of Trade (CBOT). The December 2024 fed funds futures contract depicts it ending the year at 4.975%.
• Federal Reserve officials led by New York President John Williams and Richmond’s Thomas Barkin expressed their disappointment with recent inflation data. Both expressed there’s no need to change policy, given the actual scenario of stickier inflation and robust economic growth.

Technical analysis: Mexican Peso opposes resistance, caps the USD/MXN advance below 16.50

The USD/MXN daily chart depicts the pair consolidating near 16.40, with buyers still unable to crack the current week’s high achieved on Wednesday at 16.52. Once that area is breached, the next supply zone to challenge would be the 16.62 mark, followed by the 50-day Simple Moving Average (SMA) at 16.85 and the 100-day SMA at 16.99.

Failure at 16.50 and the USD/MXN could tumble to October’s 2015 low of 16.32 before retesting the year-to-date (YTD) low of 16.25.