Mexican Peso trades higher on positive market mood, robust Mexican data


  • The Mexican Peso edges up on Monday as the market mood remains positive following US and Chinese data. 
  • The Mexican economy continues to expand despite restrictive monetary policy – a positive for the Peso. 
  • Technically, the USD/MXN is trading along the floor of a sideways range in the short-term. 

The Mexican Peso (MXN) trades marginally higher on Monday, supported by a rise in risk appetite after lower-than-expected US jobs’ data raised hopes the Federal Reserve (Fed) will move to cut interest rates, reducing borrowing costs for businesses and consumers. 

The positive market mood continued into the Asian session on Monday on the back of  Chinese data, further supporting the Peso which appreciates in risk-on environments. 

USD/MXN is trading at 16.92, EUR/MXN at 18.22 and GBP/MXN at 21.28, at the time of publication. 

Mexican Peso trades higher as market mood remains upbeat

The Mexican Peso edges higher on Monday as Asian stock markets rally after the release of the China Caixin Services PMI data shows continued expansion, and following weak US jobs data on Friday, which increased hopes interest rates might fall. In Japan the Nikkei closed 0.93% higher, China’s Shanghai Composite trades 1.16% higher at time of writing and the Hang Seng is up 0.53%.  

Mexican data surprisingly good

In Mexico, the flow of recent economic data continues to point to an economy that is performing surprisingly well under the yoke of the historically high interest rates imposed by the Bank of Mexico (Banxico) to curb inflation. 

Although the GDP growth rate in Mexico was lower on a yearly basis in Q1 it rose 0.2% quarter-on-quarter; April’s Manufacturing PMI remained in expansive territory; Business Confidence in April edged lower but not by much, and Gross Fixed Investment in February beat expectations. 

Additionally, in a recent poll, a majority of private analysts expected inflation to rise to 4.20% in 2024, which was up from the March estimate of 4.10%, revealed Banxico.

The data points to Banxico likely keeping interest rates at their elevated 11.0% for now, which supports the Peso since it boosts foreign capital inflows. 

Technical Analysis: USD/MXN lies on the floor of short-term range 

USD/MXN – the cost of one US Dollar in Mexican Pesos – is still range bound and trending sideways in the short-term. The pair has been oscillating between a floor at 16.86 and a ceiling at 17.40 since the April 19 blow off. 

USD/MXN 4-hour Chart 

Given the old trading maxim, the “trend is your friend”, the short-term trend is expected to continue until the weight of evidence proves otherwise. Although USD/MXN made an attempt to break out of its range on Friday, bearish pressure was insufficient to push through and prices recovered back inside the range. There is a slight bearish bias, however, given the medium and long-term trends are bearish and these bigger currents influence the shorter-term perspective. 

The Moving Average Convergence Divergence (MACD) indicator has crossed above its signal line, offering a buy signal which could suggest the pair is about to start rising back up within its range. 

More upside could take the USD/MXN up to the 50 Simple Moving Average (SMA) on the 4-hour chart at 17.06, followed by the lower high at 17.15. A clear break above the zone of resistance around 17.15-17.18 might see further gains up towards the range highs again. 

A decisive breakout of the range – either below the floor at 16.86, or the ceiling at 17.40 – would change the directional bias of the pair. 

A break below the floor could see further downside to a target at 16.50, followed by the April 9 low at 16.26.

On the other side, a break above the top would activate an upside target first at 17.67, piercing a long-term trendline and then possibly reaching a further target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green or red daily candlestick that pierces above or below the range high or low, and that closes near its high or low for the period; or three green/red candlesticks in a row that pierce above/below the respective levels.

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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