- The Mexican Peso plummets after hitting a low of 19.18, driven by risk appetite sentiment favoring the US Dollar.
- Mexico’s economic agenda highlights an increase in the unemployment rate to 3.0%, with the focus on upcoming inflation data and the minutes of Banxico’s September meeting.
- US Nonfarm Payrolls for September beat expectations last Friday, adding 254,000 jobs as the unemployment rate fell to 4.1%.
The Mexican Peso starts the week on the wrong foot and falls around 0.50% against the Dollar amid a risk appetite boost that keeps the US Dollar trading near seven-week highs. Last week’s outstanding US Nonfarm Payrolls (NFP) data boosted the Mexican currency, but fears of an escalation of conflict in the Middle East spurred flows into safe haven currencies. USD/MXN is trading at 19.33 after bouncing from daily lows at 19.18.
On Friday, the US Bureau of Labor Statistics (BLS) revealed that more than 254,000 people were added to the labor force in September, crushing estimates of 140,000 and August’s upwardly revised figure of 159,000. Consequently, the unemployment rate fell from 4.2% to 4.1%.
Following the data, USD/MXN fell to a new monthly low of 19.10, although it closed near last Friday’s highs, opening the door to a recovery.
Money markets reduced the odds of a 50 basis point (bp) rate cut by the US Federal Reserve (Fed) at the upcoming November meeting. Data from the Chicago Board of Trade (CBOT) via the December federal funds rate futures contract shows that investors estimate a 49 bp reduction by the Fed towards the end of 2024.
In terms of data, Mexico’s agenda revealed that the unemployment rate increased from 2.9% to 3.0%, while automobile production and exports improved.
On Thursday, Mexico’s Supreme Court voted eight to three “to consider a constitutional challenge to the controversial judicial reform enacted last month,” which would allow the election of Supreme Court judges and justices by electoral vote.
Looking ahead to the week, Mexico’s economic agenda will include the publication of inflation data on Wednesday and the minutes of the September meeting of the Bank of Mexico (Banxico).
In the US, the calendar will include numerous speeches by Fed officials, inflation data from the consumer and producer side, and the University of Michigan (UoM) Consumer Sentiment for October.
Market drivers: Mexican peso pressured by strong US dollar, risk aversion
- Banxico’s September survey of analysts and economists revealed that inflation expectations were revised downwards, with general prices falling from 4.69% to 4.48% year-on-year. Core inflation is expected to reach 3.84% from 3.94%.
- The same survey showed that the USD/MXN exchange rate is projected to end 2024 at 19.69, while Banxico’s main reference rate is projected to end at 10%.
- Mexico’s economy is expected to grow 1.45% in 2024, down from 1.57% in August.
- Chicago Fed President Austan Goolsbee said more employment reports like this “will make me more confident that we are settling into full employment.” He said most Fed officials expect rates to decline sharply over the next 18 months.
- Citi joined JPMorgan and Bank of America in changing its November Fed forecast from a 50 to 25 bp cut.
- Market participants have ruled out a 50bp cut. The odds of a 25 bp cut are 83.5%, while the odds of keeping rates unchanged are 16.5%, according to data from the CME FedWatch tool.
USD/MXN Technical Outlook: Mexican Peso Falls as USD/MXN Jumps Above 19.30
On Friday, I wrote, “USD/MXN’s bullish trend is doubtful as the pair broke above the 50-day SMA at 19.34, with sellers gaining momentum.” The exotic pair remains below that area, which could pave the way for further decline, despite Monday’s solid gains.
In the short term, the Relative Strength Index (RSI) turned bullish, although it remains in bearish territory. This opens the door for a rally before resuming its downtrend.
Therefore, the first resistance for USD/MXN would be the 50-day SMA, followed by the 19.50 level. A break of the latter will expose the October 1 daily high of 19.82, before 20.00. Next would be the annual peak of 20.22.
On the other hand, the first support for USD/MXN would be the September 24 low of 19.23. Once broken, the next demand area will be the September 18 daily low of 19.06, before the psychological figure of 19.00.
The Mexican Peso FAQs
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. 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, and may affect 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, and may affect 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.
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