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- Mexican Peso strengthens on positive market sentiment
Mexican Peso strengthens on positive market sentiment
- The Mexican Peso rises as sentiment improves due to gains for tech giants and the easing of real-estate regulations in China.
- Microsoft and Alphabet stock prices soared at the end of last week, lifting the whole market higher.
- Speculation of the Chinese authorities easing property market regulations helps soothe investor fears, further supporting sentiment.
The Mexican Peso (MXN) trades higher against its key counterparts on Monday morning on the back of a wave of positive market sentiment. Asian stock indices noted gains at the end of their session, with Hong Kong’s Hang Seng Index up 1.6% and China’s Shanghai Composite closing up 0.79% at the time of writing.
USD/MXN is trading down 0.30% at 17.10, EUR/MXN is down over 0.10% at 18.34 and GBP/MXN is down a similar amount at 21.43, at the time of publication during the European session.
Mexican Peso rises on wave of positive risk sentiment
The Mexican Peso makes gains at the start of the week as risk sentiment turns positive on speculation the Chinese Communist Party Central Committee's Political Bureau will meet in late April to discuss loosening property policies, according to Reuters.
Market sentiment is being further buoyed by the strong gains seen in US stocks on Friday as a result of expectation-beating first quarter results from Alphabet (GOOG) and Microsoft (MSFT).
On the data front, the Mexican labor market showed resilience after the release of the Unemployment Rate, which came in lower-than-expected at 2.3% in March from 2.5% previously, according to figures from INEGI. Analysts had been expecting a lesser decline to 2.4%.
Balance of Trade data, released at the same time, showed a higher-than-expected surplus of $2.098 billion in March from $1.195B in the same month of the previous year, and February’s 0.585B deficit, according to data from INEGI. The result was above expectations of a 0.700B surplus.
The data is more likely than not to lead the Banxico to delay further interest-rate cuts. The central bank reduced interest rates from 11.25% to 11.00% at its March meeting, however, it said future cuts would be data dependent. Maintaining higher interest rates for longer is likely to support the Mexican Peso going forward as higher interest rates attract more capital inflows.
Technical Analysis: USD/MXN extends sideways trend
USD/MXN extends its sideways trend over the short-term horizon as it continues to seesaw between tepid gains and losses between range lows in the 16.80s and highs in the 17.40s.
USD/MXN 4-hour Chart
The Moving Average Convergence/ Divergence (MACD) momentum indicator has just crossed below its signal line, giving a sell signal and indicating the likelihood that USD/MXN will continue falling to the range floor. The signal is enhanced by the fact that MACD is more reliable in sideways market conditions.
A decisive breakout of the range, either below the range floor at 16.86 or range ceiling at 17.40, would change the directional bias of the pair.
A break below the floor could see further downside to a target at 16.50, followed by the April 9 low at 16.26.
On the other side, a breakout higher would activate an upside target first at 17.67, piercing a long-term trendline and then possibly reaching a further target at around 18.15.
A decisive break would be one characterized by a longer-than-average green or red daily candlestick that pierces above or below the range high or low, and that closes near its high or low for the period; or three green/red candlesticks in a row that pierce above/below the respective levels.
Mexican Peso FAQs
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.
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.
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.
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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