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Mexican Peso strengthens against US Dollar amid risk-on mood



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  • Mexican Peso (MXN) extends gains against the US Dollar (USD), buoyed by a risk-on market mood.
  • Mexico’s calendar will feature mid-November inflation data, expected to show a slight increase in headline CPI and a minor decrease in core CPI.
  • The Bank of Mexico (Banxico) is set to release the minutes of its latest meeting, where it decided to maintain interest rates unchanged, altering its language from previous statements.

Mexican Peso (MXN) extends its gains despite being on holiday in observance of the Mexican Revolution, climbing more than 0.30% against the US Dollar (USD) amid a risk-on impulse. Broad US Dollar weakness persists, even though US Treasury bond yields advance slightly. The USD/MXN pair is trading at 17.13 after reaching a daily high of 17.25.

Mexico’s current week’s economic docket will feature the release of mid-November inflation, which is expected to show a slight jump in the headline Consumer Price Index (CPI) and a minuscule reduction in core CPI. Besides that, the Bank of Mexico (Banxico) will release its latest meeting minutes after deciding to hold rates “for some time” at current levels, changing the language of the prior five meetings from “for an extended period.” Regarding rate cuts, the swap market prices in 50 bps of cuts for the first half of 2024.

Daily digest movers: Mexican Peso rally extends to seven straight days, USD/MXN hits two-month low at 17.11

  • The USD/MXN is trading well below the 20, 50, 100, and 200-day Simple Moving Averages (SMAs), portraying a bearish bias.
  • The US Dollar Index (DXY), which measures the Greenback’s value against a basket of peers, posts losses of more than 0.20%, trading at 103.57, even though US Treasury bond yields climb.
  • The US 10-year Treasury bond yield is up two basis points (bps) to 4.46%.
  • Mexico’s Gross Domestic Product (GDP) figures will be revealed on Friday, alongside the third quarter current account.
  • Thursday’s economic data in the US suggests the economy is decelerating as expected by the Federal Reserve, after Industrial Production plunged in October and unemployment claims have risen the most since August.
  • Data published last week showed prices paid by consumers and producers in the US dipped, increasing investors’ speculations that the Fed’s tightening cycle has ended.
  • The swap market suggests traders expect 100 basis points of rate cuts by the Fed in 2024.
  • The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
  • Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso maintains the upper hand, with USD/MXN eyeing 17.00

The USD/MXN bearish bias remains intact, with sellers eyeing a test of the 17.00 figure, which would open the door for further losses below the figure. The next stop will be the August 28 low of 16.69 before the year-to-date (YTD) low of 16.62.

On the other hand, if the USD/MXN breaks above the 100-day Simple Moving Average (SMA) at 17.34, it could pave the way to 17.50. However, the loss of 17.28, the November 3 low, has exposed the following demand area at the 17.00 figure.

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.



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