Mexican Peso tumbles amid concerns of economic slowdown

• Mexican Peso edges down 0.30% against US Dollar, trading at 16.64.
• Mexico's April Economic Activity Indicator shows minimal growth with Q1 2024 GDP expected to be downwardly revised.
• Gloomy economic outlook with falling Retail Sales may pressure Peso despite favorable interest rate differential.

Mexican Peso registers losses versus the US Dollar during the North American session amid a slew of Federal Reserve (Fed) officials hitting the wires. Data from Mexico suggests the economy barely grew in April, according to the Instituto Nacional de Estadistica Geografia e Informatica (INEGI), ahead of revealing the release of the Gross Domestic Product (GDP) figures on May 22. Therefore, the USD/MXN trades at 16.64, up 0.30%.

Mexico’s docket featured the Economic Activity Indicator for April, saying the economy slowed, according to non-seasonally adjusted figures on a yearly basis. It showed signs of a minuscule improvement on a monthly basis, yet compared to March’s contraction, the Mexican economy didn’t grow.

Citibanamex analysts anticipate an economic slowdown, suggesting that GDP Q1 2024 figures will be downwardly revised.

This data, along with the plunge in Retail Sales in March, paints a gloomy economic outlook for Mexico. This could depreciate the Mexican Peso, even though the currency is favored by the interest rate differential set by the Bank of Mexico (Banxico) and the Fed.

In the US, Fed officials remain cautious about their stance regarding monetary policy.  Atlanta Fed President Raphael Bostic, Fed Governor Christopher Waller and Michael Barr have all hit the wires.

Daily digest market movers: Mexican Peso tumbles despite diverging views amid Banxico’s board

• Mexico’s Gross Domestic Product for Q1 2024 is expected to show the Mexican economy is slowing amid higher borrowing costs of 11.00% on fears of higher inflation and the risks of depreciation of the Peso.
• Retail Sales in March plunged -0.2% MoM, below February’s 0.5% increase. On a yearly basis, sales plummeted -1.7%, missed estimates of 0%, and trailed the previous month's 3% growth.
• Diverging views surface in Banxico as Governor Victoria Rodriguez Ceja said last Monday that the bank would discuss lowering rates in the upcoming meeting on June 29. Conversely, Deputy Governor Espinosa commented that lowering rates in March might have delayed inflation convergence toward the central bank’s target by two quarters.
• Atlanta Fed President Raphael Bostic said he isn’t in a hurry to reduce rates and prefers to keep them steady. The Fed’s higher priority remains tackling inflation.
• Fed Governor Christopher Waller said that April’s CPI showed progress but that he needs to see several months of good inflation data before supporting a rate cut. His colleague, the Vice-Chair of Supervision Michael Barr, commented, “We still need to finish the job on inflation.”
• Data from the Chicago Board of Trade shows investors are expecting 35 basis points (bps) of Fed easing toward the end of the year.

Technical analysis: Mexican Peso trips down as USD/MXN climbs above 16.60

The USD/MXN remains downwardly biased, an indication of the strength of the Mexican currency, yet it remains shy of challenging the year-to-date low of 16.25, which could pave the way to test the 16.00 psychological figure. The seller momentum has stalled as the Relative Strength Index (RSI) is bearish but flat.

On the other hand, if buyers lift the USD/MXN toward the 50-day Simple Moving Average (SMA) at 16.76, it could exacerbate a rally toward the 100-day SMA at 16.91. Once cleared, the next supply zone would be the 17.00 psychological level. In that event, the next stop would be the 200-day SMA at 17.17.