- The Mexican peso falls, weighed down by risk aversion sentiment and solid US economic data.
- Banxico Deputy Governor Omar Mejía hinted at a negative output gap by the end of 2024, which could influence future inflation.
- Traders await September inflation data from Mexico and Banxico meeting minutes, with expectations of further rate cuts by the end of the year.
The Mexican Peso depreciates against the US Dollar as high US Treasury yields support the Dollar on Tuesday. This and the news that China’s stimulus program fell short of market expectations weighed on the emerging market currency. USD/MXN is trading at 19.35, up more than 0.50%.
During the Asian session, news agencies revealed that Zheng Shanjie, head of China’s National Development and Reform Commission (NDRC), did not provide details on the shape and size of the government’s fiscal stimulus. This caused a sell-off in Chinese stocks and changed sentiment to negative.
This undermined the Mexican peso amid a thin economic agenda. Traders are attentive to the publication of inflation figures on Wednesday and the latest minutes of the monetary policy meeting of the Bank of Mexico (Banxico) on Thursday.
On Monday, Banxico Deputy Governor Omar Mejía said estimates suggest the economy could print a negative output gap by the end of 2024. Mejía added that this could influence prices when production falls below its full potential. .
A Reuters poll showed that analysts estimate that Mexico’s September Consumer Price Index (CPI) will fall to 4.62%, its lowest level since March. Meanwhile, the core CPI for the same period is expected to drop to 3.96%, extending its trend for the 20th consecutive month.
Last week, Banxico Governor Victoria Rodríguez said future cuts could be larger as long as the inflation rate continues to fall.
At the last meeting, Banxico lowered rates to 10.50% in September, and is expected to reduce borrowing costs by 25 basis points (bp) in the next two meetings, on November 14 and December 19. Markets estimate that the main reference rate will end the year at 10% and at 8% in 2025.
Across the border, last Friday’s US Nonfarm Payrolls (NFP) report caused the Federal Reserve (Fed) to reverse its rate cuts. Once the headline news showed that the economy added more than 254,000 people to the workforce, traders were quick to price in just a 25bp cut instead of 50.
Meanwhile, Fed officials crossed lines. Gov. Adriana Kugler said she will “support” more cuts if inflation slows. Echoing some of his comments was Alberto Musalem of the St. Louis Fed, who stated that he will go slowly with interest rate cuts if it makes sense.
In the US, the calendar will include many speeches from Fed officials, inflation data from the consumer and producer side, and the University of Michigan (UoM) Consumer Sentiment for October.
Daily Market Summary: Mexican Peso Pressured by Strong US Dollar, Awaiting Inflation Data
- Last 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.
- According to the Banxico survey, the central bank is projected to reduce rates by 50 bps to 10% for the rest of 2024. Meanwhile, the USD/MXN exchange rate is expected to finish around 19.69.
- Mexico’s economy is projected to grow 1.45% in 2024, down from 1.57% in August.
- After the outstanding US jobs report, Citi joined JPMorgan and Bank of America and changed its Fed forecast for November from a 50 to 25 bp cut.
- US Treasury yields soared and supported the US Dollar, which continues to appreciate against the Peso.
- 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.
- Market participants have ruled out a 50bp cut. The odds of a 25 bp cut are 85.3%, while the odds of keeping rates unchanged are 14.7%, according to data from the CME FedWatch tool.
USD/MXN Technical Outlook: Mexican Peso Falls as USD/MXN Jumps Above 19.30
Despite falling below the 50-day SMA at 19.36, USD/MXN remains biased higher. Momentum supports sellers with the Relative Strength Index (RSI) in bearish territory. However, the RSI is pointing up, and in the short term the exotic pair could extend its gains if buyers maintain the momentum.
If USD/MXN breaks above the psychological level of 19.50, look for buyers pushing the exchange rate towards the October 1 daily high of 19.82, ahead of 20.00. Next would be the annual peak of 20.22.
For a bearish resumption, if USD/MXN falls below the October 4 low of 19.10, the figure of 19.00 will be exposed. Once broken, the next support would be the 100-day SMA at 18.64.
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.
