- Analytics
- News and Tools
- Market News
- Mexican Peso edges higher as market turns risk-on
Mexican Peso edges higher as market turns risk-on
- The Mexican Peso recovers marginally as the market turns risk-on, benefiting emerging market FX.
- A possible revival of carry trade inflows amid a weaker Japanese Yen and reduced domestic political risk are further factors supporting the Peso.
- USD/MXN is in the midst of unfolding a bullish ‘abc’ pattern move.
The Mexican Peso (MXN) edges higher on Tuesday, rising by about a quarter of a percent across its most-heavily traded pairs. Positive risk appetite during the US sessions on Monday, which led to further gains for the S&P 500 stock index, may have been a factor supporting the Peso since this tends to benefit emerging market currencies.
A revival of carry trade inflows might be a further factor providing support for the Mexican Peso. This involves traders borrowing in a currency with low interest rates such as the Japanese Yen (JPY) and purchasing a currency with high interest rates such as the Mexican Peso. The difference between the interest earned on the Peso investment and that paid on the Yen loan represents the profit discounting fluctuations in the exchange rate.
The outlook for the Japanese Yen (JPY) is not looking bright after the weekend elections saw the ruling Liberal Democratic Party (LDP) coalition lose its grip on power. Opposition parties are generally against raising interest rates in Japan, which is weighing on the Yen and making the carry trade more attractive. Overnight, Yuichiro Tamaki, leader of the Japan Democratic Party for the People (DPP), said he was opposed to further rate hikes by the Bank of Japan (BoJ).
Mexican Peso impacted by political risk
The Mexican Peso may also be finding support after the news that the Mexican Supreme Court Judge, Juan Luis González Alcántara Carrancá, a staunch opponent of the controversial judicial reforms the Sheinbaum administration is trying to implement, attempted a new tactic to block their implementation. The reforms enable the election of judges rather than their appointment, but Carrancá, argued on Monday, that the creation of the “Evaluation Committees” used to short-list candidates for elections in the first step, was unconstitutional in itself, according to El Financiero.
For context, the Peso depreciated over 10% in value after the June election in which Sheinbaum and her Morena party coalition gained a super majority in the Mexican Congress. Many western investors fretted over the consequences of the result since it would enable the new government to make radical reforms to the constitution, which critics viewed as market unfriendly.
On the data front, the Peso sees a busy week ahead, especially with Mexican preliminary Gross Domestic Product (GDP) data for Q3 and the Fiscal Balance out on Wednesday, and the Jobless Rate on Friday.
Recently, the International Monetary Fund (IMF) downgraded its forecasts for growth for the Mexican economy to 1.5% in 2024. GDP grew a robust 2.1% YoY in Q2, but corroboration of the IMF’s gloomy assessment from weak Q3 GDP data might weigh on the Peso.
Technical Analysis: USD/MXN unfolding leg higher
USD/MXN broadly continues unfolding a leg higher after a mild pullback. The up leg is probably the “c wave” of a bullish “abc” pattern, which began at the October 14 swing low. It will probably reach the Fibonacci 61.8% of the length of wave “a”, giving an upside target of 20.29. Such a move would gain confirmation from a break above the high of wave “b” at 20.09.
USD/MXN Daily Chart
USD/MXN is probably in an uptrend on a short, medium and long-term basis and is trading in a rising channel. Given the technical dictum “the trend is your friend,” the odds favor a continuation higher.
In addition, the original break above 19.83 (October 1 high) has already confirmed a probable move up, with a target in the vicinity of the September 10 high at 20.13.
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.
© 2000-2024. All rights reserved.
This site is managed by Teletrade D.J. LLC 2351 LLC 2022 (Euro House, Richmond Hill Road, Kingstown, VC0100, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
The company does not serve or provide services to customers who are residents of the US, Canada, Iran, The Democratic People's Republic of Korea, Yemen and FATF blacklisted countries.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at pr@teletrade.global.
Bank transfers
