Most recent article: Mexican Peso depreciates against US Dollar due to falling US yields, mixed CPI data
- Mexican Peso strengthens against US Dollar, drawing below significant levels last seen in October 2015.
- The first presidential debate highlights the contrast between Claudia Sheinbaum's and Xochitl Galvez's visions for Mexico's future.
- Upcoming economic indicators from Mexico and the US, including inflation and industrial data, set to provide further market direction.
The Mexican Peso appreciates further against the US Dollar on Monday with Peso buyers breaching the October 2015 high after overcoming the psychological 16.50 figure. On Monday, a light economic docket on both sides of the border keeps the USD/MXN downtrend intact. At the time of writing, the pair exchanged hands at 16.31, down 0.79%.
On Sunday night, Mexicans were captivated by the first presidential debate, held at the Instituto National Electoral, headquarters of the election oversight body. The debate centered around the two women leading the polls, Claudia Sheinbaum of the ruling party Morena and Xochitl Galvez, who helms a multiple-party coalition.
Sheinbaum touted her tenure as Mexico City's mayor, aiming to follow President Lopez Obrador, and praised Mexico's economic growth, advocating for state-run economics due to corruption in the private sector. Conversely, Galvez proposed modern solutions such as blockchain for healthcare subsidies and emphasized robotics, AI and English education. The debate saw Galvez confronting Sheinbaum about alleged corruption involving the president's sons, which Sheinbaum sidestepped by labeling Galvez as a liar.
Aside from this, Mexico’s economic docket will feature the release of inflation figures, industrial production and retail sales. In the US, the calendar will feature Fed speakers, inflation data on the consumer and producer side, the release of the Federal Reserve’s last meeting minutes, and jobs data.
Daily digest market movers: Expectations of uptick in Mexican inflation boosts Peso
- The Mexican Peso rises on expectations that March’s inflation would rise above February’s data, suggesting that the Banxico could pause its easing cycle.
- Mexico’s inflation forecasts for March expect the Consumer Price Index (CPI) to increase from 0.09% to 0.36% MoM and to 4.5% in the twelve months to March, up from 4.5%.
- Core CPI is foreseen rising to 0.5% from 0.49% MoM, while yearly figures would edge lower to 4.62%, down from 4.64%.
- US Treasury yields climb, though they fail to boost the Greenback, which is treading water as shown by the US Dollar Index (DXY). The DXY falls 0.10% to 104.18.
- Market participants' expectations that the Fed would cut rates three times this year are waning, as shown by the CME FedWatch Tool. The odds for June edged below 52%, while for July they stood at 69%.
Technical analysis: Mexican Peso gains momentum as USD/MXN tumbles below October 2015 lows
The USD/MXN fell to a new nine-year low at around 16.32, with traders posing to drive the exchange rate below that level toward the 16.00 figure. Even though the Relative Strength Index (RSI) turned oversold, sellers are gaining momentum. Therefore, the next support would be the psychological 16.00 figure.
On the other hand, the USD/MXN first resistance would be the 16.50 mark, followed by last year’s 16.62 mark.
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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