Mexican Peso (MXN) prints slim losses against the US Dollar (USD), with the USD/MXN virtually unchanged, up by a marginal 0.01%, after hitting a daily high of 17.21.Market participants are digesting recent comments from US Federal Reserve (Fed) officials, Christopher Waller and Chicago Fed President Austan Goolsbee. At the time of writing, the exotic pair exchanges hands at around 17.14.
Mexico’s scarce economic docket keeps USD/MXN traders focused on US economic data. The US Conference Board (CB) revealed that Consumer Confidence in November rose above forecasts and October’s downward revised data. At the same time, Fed Governor Christopher Waller commented he’s confident the current policy is well-positioned to slow the economy and get inflation back to 2%. Chicago Fed President Austan Goolsbee said they had made progress on inflation outside of food prices.
The USD/MXN has consolidated during the last seven days, within the 17.05/17.20 area, unable to drop or rise above the range, while the 20-day Simple Moving Average (SMA) at 17.37 aims toward the 100-day SMA at 17.34, suggesting that sellers are gathering momentum in the short term. Hence, they need to reclaim the 17.05 figure, ahead of driving prices toward the 17.00 figure and below.
Contrarily, buyers must pierce the 17.20 area and reclaim the 100-day SMA, so they could threaten to test the 200-day SMA at 17.58 before they rally to the 50-day SMA at 17.68, both dynamic resistance levels.
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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