- The Mexican peso remains weak despite positive economic data.
- Banxico is expected to keep rates unchanged, with the Citibanamex survey indicating that most economists predict there will be no rate cut until the third quarter of 2024.
- US data shows higher-than-expected Q1 GDP, lower jobless claims and stronger durable goods orders, boosting the USD.
The Mexican peso registers minimal losses in the first operations of the North American session as operators prepare for the monetary policy decision of the Bank of Mexico (Banxico), scheduled for 19:00 GMT. At the time of writing, USD/MXN is trading at 18.39, up 0.36%.
Mexico’s economic data was better than expected, with the unemployment rate below estimates, while the trade balance posted a surprising surplus. Despite this, the Mexican currency remained slightly weaker against the US dollar (USD).
Later, Banxico is expected to keep rates unchanged, according to the latest Citibanamex survey published on June 20. Of the 31 economists surveyed, only nine expect a rate cut to 10.75% later, while the other 22 market participants moved their projections to the third quarter of 2024.
Across the border, mixed data in the United States (US) boosted the dollar against most emerging market currencies, but fell against most G7 currencies. The final reading of the Gross Domestic Product (GDP) for the first quarter of 2024 was higher than expected, jobless claims declined and durable goods orders exceeded forecasts.
Therefore, USD/MXN has resumed the uptrend but remains subject to Banxico’s decision. A pause could trigger a change of direction and open the door to challenge the April 19 high support at 18.15. Further declines would be seen once it is cleared.
Otherwise, if Banxico eases policy, the exotic pair could challenge the yearly high of 18.99, with further gains once the level is cleared.
Daily movements and market drivers: The Mexican peso on the defensive before Banxico
- Data from Mexico revealed that the unemployment rate in May was 2.6%, below estimates of 2.7%. The trade balance posted a surplus of $1.99 billion, crushing consensus projections of a deficit of -$2.04 billion.
- The Citibanamex survey showed economists were pricing in fewer rate cuts by the central bank, estimating rates will drop to 10.25% in 2024, from 10.00%. As for USD/MXN, the consensus estimate for the year-end exchange rate is 18.70, up from 18.00 in the previous report.
- Regarding economic growth, the consensus revised the Gross Domestic Product (GDP) downwards for 2024 from 2.2% to 2.1% annually.
- US GDP for the first quarter of 2024 was 1.4%, higher than the 1.3% in the previous two readings, still behind last year’s fourth quarter with an expansion of 3.4%.
- U.S. durable goods orders in May rose 0.1% month-on-month (MoM), beating expectations for a contraction of -0.1%. At the same time, initial jobless claims declined from 239,000 last week to 233,000, below expectations of 236,000.
- The CME FedWatch tool shows the odds of a 25-basis-point Fed rate cut at 59.5%, up from 56.3% on Wednesday.
Technical Analysis: Mexican Peso falls slightly as USD/MXN recovers above 18.30
USD/MXN has a bullish bias, but the pair will likely remain volatile as Banxico’s decision approaches. Despite this, the momentum is in favor of the buyers, as the RSI suggests that the bulls are in control.
For a bullish continuation, buyers need to push the USD/MXN exchange rate beyond the psychological level of 18.50. Once cleared, the next stop would be the yearly high of 18.99, followed by the March 20, 2023 high at 19.23, followed by a rally to 19.50.
On the other hand, if USD/MXN breaks below the support of the April 19 high at 18.15, that will pave the way towards 18.00. The next key support level would be the 50-day simple moving average (SMA) at 17.37 before testing the 200-day SMA at 17.23. Once those two levels are cleared, the next stop would be the 100-day SMA at 17.06.
The Mexican Peso
The Mexican Peso is the legal currency of Mexico. The MXN is the most traded currency in Latin America and the third most traded currency in the Americas. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, potentially affecting demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
