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Mexican Peso Strengthens for Fifth Consecutive Day as US Economic Data Curbs Rate Hike Expectations

  • The Mexican Peso continues its five-day recovery as USD/MXN falls below the key 100-day SMA support.
  • Comments from Banxico officials suggest the central bank would adopt a slightly dovish stance in 2024.
  • The downward path of inflation in the US continues as the prices of exports and imports fall.
  • Industrial Production in the United States suggests that the economy could slow faster than expected.

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

Mexico’s economic agenda remains thin, and traders are leaning toward the latest comments from officials at the Bank of Mexico (Banxico), its governor Victoria Rodríguez Ceja, and deputy governor Jonathan Heath. Both highlighted that rate cuts could begin in 2024, but stressed that monetary policy would remain restrictive despite this.

In the United States, inflation continued its downward trend after prices paid by producers followed the path of lower consumer prices, although the latter remained above the 2% target set by the Fed. The US economic agenda on Thursday highlighted export and import prices, both figures more moderate than expected, while industrial production (IP) contracted in October, according to data revealed by the Fed.

Daily Movements: The Mexican Peso is heading to test the psychological figure of 17.00

  • In October, US Industrial Production missed estimates of a 0.3% decline and fell 0.6% month-on-month, following September’s 0.1% expansion. In annual terms, it fell 0.7%.
  • The Philadelphia Fed Manufacturing Index improved slightly to -5.9 versus expectations of -9 points.
  • U.S. initial jobless claims for the week ending Nov. 11 rose by 231,000, beating estimates of 220,000, the biggest jump in nearly three months.
  • The US Consumer Price Index and Producer Price Index reports for October suggest that prices are cooling, which has increased the likelihood of an end to the US Federal Reserve’s tightening cycle.
  • Interest rate swap traders expect 100 basis points of rate cuts from the Fed in 2024.
  • Banxico Deputy Governor Jonathan Heath said the Governing Board continues to monitor real rates, which currently sit around 7%.
  • Heath said Banxico would not be dependent on other countries – Banxico typically reacts to decisions by the US Federal Reserve – and said they would depend on incoming data and how inflation expectations evolve.
  • On Monday, Banxico Governor Victoria Rodríguez Ceja commented that the easing of inflationary prospects could pave the way to discuss possible rate cuts. She stated that the easing of monetary policy could be gradual, but would not necessarily involve continued rate cuts, adding that the board would consider macroeconomic conditions, taking a data-dependent approach.
  • The latest report on inflation in Mexico, published on November 9, showed that prices grew 4.26% year-on-year in October, below forecasts of 4.28% and the previous rate of 4.45%. In monthly terms, inflation stood at 0.39%, slightly above the consensus of 0.38% and 0.44% in September.
  • Mexico’s economy remains resilient after October’s S&P Global manufacturing PMI improved to 52.1 from 49.8, and Gross Domestic Product (GDP) expanded 3.3% year-over-year in the third quarter.
  • Banxico revised its inflation forecasts from 3.50% to 3.87% for 2024, which remains above the central bank’s target of 3.00% (plus or minus 1%).

Technical Analysis: The Mexican Peso extends its recovery, with USD/MXN falling below the 100-day SMA

The bias of the USD/MXN pair has changed to the downside in the near term as the pair broke below the 100-day SMA at 17.34. The next support level would be the psychological figure of 17.00. The pair has moved lower, with the 20-day SMA approaching the 17.70-17.65 zone, where the 50-day and 200-day SMA converge. If the bearish crossover completes, it could pave the way for a test of the psychological figure of 17.00, before challenging the year-to-date low of 16.62, printed in July.

On the other hand, if USD/MXN buyers reclaim the 100-day SMA at 17.34, the 17.50 level could be tested in the short term. Breaking this last mark would expose key resistance levels, such as the 200-day SMA at 17.64, before the 50-day SMA at 17.69. Once overcome, the next resistance would be at the 20-day SMA at 17.87, before buyers could lift the price towards the 18.00 area.

Frequently Asked Questions about the Mexican Peso

What factors determine the price of the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the evolution of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Joined. Geopolitical trends can also move the MXN: for example, the nearshoring process – or the decision by some companies to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the currency. Mexican, since the country is considered a key manufacturing center on the American continent. Another catalyst for the MXN is oil prices, as Mexico is a key exporter of this commodity.

How do Banxico’s decisions affect the Mexican peso?

The main objective of Mexico’s central bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its target of 3%, the midpoint in a tolerance band between 2% and 4%. %). To do this, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico tries to control it by raising interest rates, which makes borrowing more expensive for households and companies, thus cooling demand and the economy in general. Higher interest rates are generally positive for the Mexican peso (MXN), as they translate into higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN.

How do economic data influence the value of the Mexican Peso?

The publication of macroeconomic data is key to evaluating the state of the economy and can have an impact on the valuation of the Mexican Peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, but it may encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this strength is accompanied by high inflation. However, if economic data is weak, the MXN is likely to depreciate.

How does general risk sentiment affect the Mexican Peso?

As an emerging market currency, the Mexican peso (MXN) tends to strengthen during periods of risk appetite, or when investors perceive that overall market risks are low and are therefore eager to engage in investments. that carry greater risk. On the contrary, the MXN tends to weaken in times of market turmoil or economic uncertainty, as investors tend to sell riskier assets and flee to more stable havens.

Source: Fx Street

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