Most recent article: Mexican Peso surges to highest level since 2015, ignoring strong US NFP data
- Mexican Peso is slightly up versus the US Dollar on cautious trading as Consumer Confidence deteriorates.
- Decrease in Mexico's Consumer Confidence and Manufacturing PMI slowdown highlight challenges amid Banxico's rate adjustments.
- Remittances remain a key support for the Peso, overshadowing near-shoring gains amid broader economic considerations.
- Banxico's divided stance, could weigh in the Mexican Peso at upcoming meetings.
The Mexican Peso makes a U-turn and erases its previous gaind, plunges 0.42% against the US Dollar, late in the North American session. Economic data from Mexico and the United States (US) sponsored a leg-down in the USD/MXN pair. The Greenback is erasing its previous losses as the US Dollar Index (DXY) remains at 104.24, virtually unchanged. The USD/MXN trades at 16.60.
Mexico’s economic docket witnessed a drop in March’s Consumer Confidence, according to the National Statistics Agency (INEGI). Data shows the economy is still growing but began to lose some momentum as March’s Manufacturing PMI decelerated amid higher interest rates set by the Bank of Mexico (Banxico).
Meanwhile, Mexico’s remittances continued to be the main driver of the Peso’s strength. There’s speculation about near-shoring, but according to an article by EL CEO, in 2023 Foreign Direct Investment (FDI) stood at $36.058 billion, while remittances amounted to $63.345 billion. Sources cited by EL CEO stated, “We must not fail to point out that this is a gap in Mexico's productive capacity and a lack of opportunities. We are getting the kind of external savings.”
In the meantime, the Bank of Mexico revealed its March meeting minutes, which showcased the Governing Council witnessed a split vote, with Deputy Governor Irene Espinosa dissenting from cutting rates.
The US economy witnessed a cooler labor market as more Americans applied for unemployment benefits. The Balance of Trader revealed that the deficit widened compared to January’s data.
Daily digest market movers: Mexican Peso strength unlinked to Foreign Direct Investment
- Banxico’s minute's remarks highlighted that Deputy Governor Irene Espinosa dissented based on inflation expectations being above the central bank’s target.
- Mexico’s central bank lowered rates by 25 bps in March to 11%. Despite that, the Governing Council stated they would remain vigilant on inflation. According to the minutes, Banxico would remain data dependent, and highlighted that inflation risks remain tilted to the upside.
- Mexico’s Consumer Confidence stood at 47.3 in March, below February’s 47.4.
- A Reuters poll published on April 4 reveals that most economists foresee the USD/MXN appreciating 4.7% to 17.38 in twelve months, down from 18.24 projected in the March poll.
- Ahead on Thursday, Banxico releases the latest meeting minutes.
- According to Dafne Viramontes, the president of the Aguascalientes College of Economists, from 2013 to 2017, FDI amounted to $180 billion, while in the first five years of Andres Manuel Lopez Obrador's presidency, it sank to $167 billion.
- US Initial Jobless Claims for the week ending March 30 rose by 221K, exceeding the consensus of 214K and last week’s 212K.
- The US Balance of Trade reported a $-68.9B deficit, more than the $-67.3B estimate and January’s $-67.6B.
- Philadelphia Fed President Patrick Harker commented that inflation is too high for rate cuts at present.
Technical analysis: Mexican Peso remains firm with buyers eyeing 16.32, October’s 2015 low
The USD/MXN remains bearish with sellers eyeing a retest of the year-to-date (YTD) low of 16.51. It appears the pair is consolidating near 16.50, unable to break below that level decisively, which could pave the way to test the October 2015 low of 16.32. Further downside is seen at the 16.00 figure.
On the flip side, If USD/MXN bulls stepped in, they must reclaim 16.70. Once cleared, the next resistance would be the 50-day Simple Moving Average (SMA) at 16.91, with further upside seen at the 100-day SMA at 17.02, ahead of the 200-day SMA at 17.18.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD retargets the 0.6600 barrier and above
AUD/USD extended its positive streak for the sixth session in a row at the beginning of the week, managing to retest the transitory 100-day SMA near 0.6580 on the back of the solid performance of the commodity complex.
EUR/USD keeps the bullish bias above 1.0700
EUR/USD rapidly set aside Friday’s decline and regained strong upside traction in response to the marked retracement in the Greenback following the still-unconfirmed FX intervention by the Japanese MoF.
Gold advances for a third consecutive day
Gold fluctuates in a relatively tight channel above $2,330 on Monday. The benchmark 10-year US Treasury bond yield corrects lower and helps XAU/USD limit its losses ahead of this week's key Fed policy meeting.
Bitcoin price dips to $62K range despite growing international BTC validation via spot ETFs
Bitcoin (BTC) price closed down for four weeks in a row, based on the weekly chart, and could be on track for another red candle this week. The last time it did this was in the middle of the bear market when it fell by 42% within a span of nine weeks.
Japan intervention: Will it work?
Dear Japan Intervenes in the Yen for the first time since November 2022 Will it work? Have we seen a top in USDJPY? Let's go through the charts.