- The Mexican Peso recovers from Monday’s fall, and the USD/MXN pair is trading around 17.50.
- Banxico is anticipated to keep the overnight cash rate unchanged at 11.25%, with markets pricing in a stable approach to upcoming monetary policy decisions.
- The Federal Reserve’s pause in raising rates last week has led to an appreciation of the peso against the dollar of 3.75%.
He Mexican peso (MXN) recovers from Monday’s losses against the US dollar (USD), driven by rising Treasury yields in the United States (US). The tight economic calendar in Mexico keeps traders attentive to the next monetary policy decision from the Bank of Mexico (Banxico), with traders hoping for no change in the overnight cash rate, which currently stands at 11.25% . Therefore, USD/MXN is seen hovering around the 17.50 area, the current spot price, losing a decent 0.17% on the day.
Banxico has two monetary policy decisions left for the rest of 2023. Its officials have hit markets with hawkish comments, saying rates should remain at the current level for a longer period. By contrast, the Federal Reserve’s (Fed) decision last Wednesday to keep rates unchanged ignited speculation that the Fed has ended its tightening cycle. This boosted the peso’s appreciation by 3.75% since then, as USD/MXN has plummeted from 18.12 to 17.45.
Lately, Minnesota Fed President Neil Kashkari pushed back against the market’s “dovish” sentiment, saying the strength of the economy raises the question of whether “it (policy) is as restrictive as we (the Fed) are.” We assume it is currently.” He added that a pick-up in inflation would justify further tightening. On the dovish side, Chicago Fed President Austan Goolsbee said progress has been made on inflation and added the conversation of how high rates should be raised, which could change how long it would take to hold rates. at this level.
Daily Movements: Mexican Peso Boosted by Falling US Bond Yields
- CME’s FedWatch tool shows the odds of further tightening plummeting, as participants see a 20% chance of a 25 basis point hike in January 2024. On the other hand, rate cuts have begun to take effect. price, with a 51.05% probability for a 25 basis point cut in May 2024.
- In terms of data, the US trade deficit increased 4.9% to $61.5 billion from $58.7 billion, above the $59.9 billion forecast.
- Ahead on the schedule will be more Fed speakers, with governors Michael Barr, Christopher Waller and Kansas City Fed President Jeffrey Schmidt.
- Mexico’s S&P Global October manufacturing PMI stood at 52.1 points, up from 49.8 in September.
- Mexico’s Gross Domestic Product grew 0.9% quarter-on-quarter in the third quarter in its preliminary reading, above the previous quarter and estimates of 0.8%.
- In annual terms, Mexican GDP in the third quarter grew 3.3%, above forecasts of 3.2% but below the previous 3.6%.
- On October 24, the National Institute of Statistics of Mexico (INEGI) reported that annual headline inflation stood at 4.27%, below the 4.45% at the end of September and forecasts of 4.38%.
- Mexico’s core inflation rate was 5.54% year-on-year, below forecasts of 5.60%.
- 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, which remains above the central bank’s target of 3.00% (plus or minus 1%). The next decision will be announced on November 9.
Technical Analysis: Mexican Peso buyers in control as they eye the 100-day SMA
The USD/MXN daily chart shows the pair lower, resuming its downtrend despite experiencing a slight recovery on Monday. Even though the pair formed a Japanese hammer candlestick pattern at Friday’s lows, the current price action suggests that the exotic pair could consolidate around current price levels ahead of Banxico’s decision.
Therefore, if the pair remains sideways, look for key support levels at Monday’s low at 17.40, followed by the 100-day SMA at 17.31. A break of this last level would expose the 17.00 area, before the pair tests the low of 16.62 recorded so far this year.
On the opposite side, the first resistance level for USD/MXN would be the 50-day SMA at 17.65, followed by the 200-day SMA at 17.69. Once these levels are broken, the USD/MXN is expected to move higher. Once these levels are broken, we will have to be vigilant to challenge the key psychological level 18.00.
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 broader market risks to be 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
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.
