Mexican Peso strengthens for fifth day as US economic data dampens rate hike expectations

• Mexican Peso continues its five-day rally as the USD/MXN drops below the key support at the 100-day SMA.
• Banxico’s officials comments suggest the central bank would adopt a slightly dovish stance in 2024.
• The US inflation downward path continues as export and import prices plunge.
• Industrial Production in the United States suggests the economy could slow down faster than expected.

Mexican Peso (MXN) extended its gains for the fifth consecutive day against the US Dollar (USD) after a raft of economic data from the United States (US) continues to cement a scenario of no more rate hikes by the US Federal Reserve (Fed). The USD/MXN pair hit a daily high at around 17.33, below the 100-day Simple Moving Average (SMA) of 17.34, before resuming its downtrend, which was positive for the Peso.

Mexico's economic docket remains scarce, with traders leaning to the latest comments from Bank of Mexico (Banxico) officials, its Governor Victoria Rodriguez Ceja, and Deputy Governor Jonathan Heath. Both stressed rate cuts could begin in 2024 but emphasized that monetary policy would continue to be restrictive despite that.

On the US front, inflation extended its downtrend after prices paid by producers followed the path of lower consumer prices, though the latter remained above the Fed’s 2% target. Thursday’s US economic docket featured export and import prices, both figures easing more than expected, while industrial production (IP) contracted in October, according to data revealed by the Fed.

Daily digest movers: Mexican Peso on its path to test the psychological 17.00 figure

• In October, Industrial Production in the United States missed estimates for a 0.3% plunge and dropped 0.6% MoM and following September’s 0.1% expansion. On a yearly basis, it fell 0.7%.
• The Philadelphia Fed Manufacturing Index improved lightly to -5.9 versus expectations of -9 points.
• US Initial Jobless Claims for the week ending November 11 rose 231K, exceeding forecasts of 220K, the highest jump in nearly three months.
• The US Producer Price Index and Consumer Price Index reports in October, suggests prices are cooling down, which has increased the odds for an end of the US Federal Reserve tightening cycle.
• Interest rates swap traders, expect 100 basis points of rate cuts by the Fed in 2024.
• Banxico’s Deputy Governor Jonathan Heath said the Government Board continues to monitor real rates, which currently lie at around 7%.
• Heath said Banxico wouldn’t rely on other countries – usually, Banxico reacts to the US Federal Reserve’s decisions – and said they would depend on incoming data and how inflation expectations evolve.
• On Monday, Banxico’s Governor Victoria Rodriguez Ceja commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
• The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
• Mexico’s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
• Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso extends its rally, with USD/MXN sliding below the 100-day SMA

The USD/MXN pair bias has shifted downwards in the short term, as the pair broke below the 100-day Simple Moving Average (SMA) at 17.34. The next support level would be the psychological 17.00 figure. The pair has shifted bearishly, with the 20-day SMA approaching the 17.70-17.65 area, where the 50- and 200-day SMAs converge. If the bearish cross is completed, it could pave the way for a test of the psychological 17.00 figure, ahead of challenging the year-to-date (YTD) low of 16.62, printed in July.

On the other hand, if USD/MXN buyers reclaim the 100-day SMA at 17.34, that could put into play a test of the 17.50 mark in the near term. A breach of the latter would expose key resistance levels, like the 200-day SMA at 17.64, ahead of the 50-day SMA at 17.69. Once cleared, the next resistance emerges at the 20-day SMA at 17.87 before buyers could lift the spot price towards the 18.00 figure.