The Mexican Peso (MXN) is taking a breather, retreating from a 17-week high against the US Dollar (USD) as markets kick off the new trading year focusing on US labor and output data.
Economic data from Mexico is absent from the calendar for this week, and the USD is set to be the primary driver to usher in 2024. The Greenback is rebounding in early trading as money markets ease back on bets of Federal Reserve (Fed) rate cuts, with the US Dollar reclaiming around a full percent against the Peso.
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.99% | 0.90% | 0.49% | 0.71% | 0.64% | 0.99% | 0.93% | |
EUR | -0.84% | 0.08% | -0.35% | -0.12% | -0.36% | 0.16% | 0.04% | |
GBP | -0.92% | -0.08% | -0.41% | -0.20% | -0.20% | 0.08% | -0.05% | |
CAD | -0.49% | 0.32% | 0.59% | 0.21% | 0.13% | 0.49% | 0.39% | |
AUD | -0.70% | 0.11% | 0.22% | -0.22% | -0.25% | 0.29% | 0.19% | |
JPY | -0.63% | 0.37% | 0.33% | 0.05% | 0.26% | 0.52% | 0.19% | |
NZD | -1.00% | -0.14% | -0.08% | -0.49% | -0.28% | -0.54% | -0.11% | |
CHF | -0.87% | -0.02% | 0.06% | -0.35% | -0.15% | -0.24% | 0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
The Mexican Peso (MXN) is slipping back from near-term highs, getting pushed back down as market pivot into Greenback bets. The USD/MXN has rebounded above the 200-hour Simple Moving Average (SMA), climbing back over the 17.00 level following last week’s decline to a multi-month low of 16.86.
Bullish momentum in the US Dollar still faces a long climb upwards, with long-term technical resistance sitting at the bearish crossover of the 50-day and 200-day SMAs just south of 17.50. On the low side, a break below 2023’s lows of 16.62 will see the USD/MXN breaking into its lowest bids since 2016.
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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