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The Mexican peso is torn between risk appetite and Banxico’s moderate tone.

  • The Mexican Peso (MXN) experiences some volatility at the start of the week, initially rising against the US Dollar (USD) before retreating.
  • Banxico Governor Victoria Rodríguez Ceja’s comments on possible rate cuts next year add pressure on the Mexican Peso.
  • A risk-off momentum keeps USD/MXN in positive territory despite overall US dollar weakness.

The Mexican Peso (MXN) loses some ground against the US Dollar (USD) early in the North American session on Monday. The USD/MXN pair hit a low of 17.60, but rebounded as buyers regained control, lifting the exchange rate to 17.65, up 0.4% on the day.

Mexico’s economic agenda is empty following last Thursday’s decision by the Bank of Mexico, also known as Banxico, to keep rates at 11.25% and remove hardline comments from its statement, which weighed on the Mexican peso. However, the peso pared some losses on Friday, but now USD/MXN buyers are trying to break the 200-day SMA at 17.66. On Monday, dovish comments from Banxico Governor Victoria Rodríguez Ceja keep USD/MXN trading with minuscule gains.

Daily Movement Summary: The Mexican Peso Remains Range-Limited Even as Market Sentiment Turns Sour

  • The Governor of Banxico, Victoria Rodríguez Ceja, commented that the relaxation 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 imply a continuation of rate cuts, adding that the board would consider macroeconomic conditions, taking a data-dependent approach.
  • Mexico’s industrial production cooled, according to data provided by the National Statistics Institute (INEGI) on November 10. Production grew 3.9% year-on-year in September, below the 4.4% forecast and down from 5.2% in August.
  • 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.
  • Last Thursday’s hawkish comments from US Federal Reserve Chairman Jerome Powell pushed USD/MXN towards 17.93, before paring some losses.
  • Mexico’s economy remains resilient after S&P Global’s October 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 remains stable despite the appearance of golden crosses, the USD/MXN remains in the green

USD/MXN maintains a neutral to bullish bias, one step away from breaking crucial resistance levels, such as the 200-day SMA at 17.66, followed by the 50-day SMA at 17.70. Once these two levels are broken, the next resistance would be at the 20-day SMA at 17.91 before buyers could push the spot price towards the 18.00 area.

On the contrary, key support levels sit at 17.50, followed by the November 9 low at 17.47 and the 100-day SMA at 17.33. A loss of this latter level would expose the spot price to the downside. A loss of this latter level would expose the psychological level of 17.00 before the pair attempts to test the year-to-date low of 16.62.

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, since Mexico is a key exporter of this raw material.

How do Banxico’s decisions affect the MXN?

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 MXN?

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 broader market risks to be low and are therefore willing to commit to 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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