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The Mexican peso gains ground despite Mexico’s trade deficit

  • The Mexican Peso extends its gains and marks a 7-day low below 18.00, thanks to the boost in risk appetite.
  • Mexico’s trade deficit widened to $1,481 million in September, but did not affect the recovery of the Peso.
  • US inflation data was in line with estimates and the market is skeptical that the Fed will raise rates beyond the current range.

He Mexican peso (MXN) rebounds against US dollar (USD) at the start of the North American session amid some improvement in risk appetite despite Mexico’s economic data being worse than expected. Inflation in the United States (US) met estimates, as revealed by the US Bureau of Economic Analysis (BEA). Despite justifying another hike by the US Federal Reserve (Fed), market participants are pricing in the end of the Fed’s tightening cycle. The pair USD/MXN is trading at 18.08, down 0.49% on the day.

Mexico’s trade balance in September was 1,481 million dollars, worse than the consensus of 0.7 billion dollars, and than that of August of 1,377 million dollars, for a seasonally adjusted deficit of 822 million dollars. The data did not cause a reaction in the USD/MXN, which plummeted after the underlying Personal Consumption Expenditure (PCE) report. The Fed’s preferred indicator for measuring inflation showed that prices rose in line with estimates in September on a monthly and annual basis and supported the next leg lower for USD/MXN from around 18.15 towards its daily low at 17.99 .

Market participants remain skeptical that the Fed will raise rates beyond the current 5.25% – 5.50% range, as evidenced by CME’s FedWatch tool.

Daily summary of market movements: Mexican Peso revives, USD/MXN falls below 18.10

  • Mexico’s trade balance for September showed a deficit of 1,418 million dollars, worse than that of August and the estimates of 1,377 million and 0,710 million dollars, respectively.
  • The US core PCE index rose 3.4% year-on-year, unchanged from August and in line with estimates.
  • The US core PCE index, on an annual basis, cooled from 3.8% in August to 3.7% in September, but came out as expected.
  • US third-quarter GDP grows at an annualized rate of 4.9%, above the consensus of 4.2%.
  • On October 24, Mexico’s National Statistics Institute (INEGI) reported that annual headline inflation stood at 4.27%, below the 4.45% recorded at the end of September and below forecasts of 4.38%.
  • Mexico’s core inflation rate was 5.54% year-on-year, below forecasts of 5.60%.
  • Earlier this week, the S&P Global manufacturing PMIs highlighted the expansion of the US manufacturing and services sectors during the month of October.
  • The Bank of Mexico (Banxico) kept rates at 11.25% in September and revised its inflation forecasts from 3.50% to 3.87% for 2024, above the central bank’s target of 3.00% (plus or minus 1%).

Technical Analysis: Mexican Peso Rises as USD/MXN Declines Below 20-Day SMA Around 18.08

The USD/MXN uptrend remains intact despite Friday’s drop below the 18.00 figure, putting the 20-day SMA at 18.08 at risk of breaking decisively to the downside. A daily close below the latter could pave the way for a drop below 18.00 and a test of the 200-day SMA at 17.72. On the other hand, if the exotic pair holds above the 20-day SMA, the next resistance will emerge at the October 26 high at 18.42 before challenging last week’s high at 18.46, before challenging the 18.50.

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 influence 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 broader market risks are low and are therefore willing to engage in investments that carry a higher 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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