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Mexican Peso treads water as the US Dollar prints solid gains


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  • Mexican Peso edges lower as USD/MXN pair rises on its way toward the 100-day SMA.
  • Mexico’s retail sales growth slowed to 2.3% in September, missing forecasts with consumers feeling higher interest rates set by Banxico.
  • Mexico’s key economic releases ahead include November inflation data and Q3 GDP.

Mexican Peso (MXN) dives against the US Dollar (USD) and prints minuscule daily losses of 0.12% after inflation expectations in the United States (US), climbed. Hence, the USD/MXN pair edges higher for two straight days and trades above the 17.20 area after hitting a daily low of 17.15.

The University of Michigan Consumer Sentiment poll revealed that inflation expectations, rose for one year to 4.5% from 4.4% in the previous report, while it stood at 3.2% for a five-year period. That sponsored the USD/MXN with the current leg-up after the pair hovered around the 17.18 area.

Mexico’s Retail Sales grew by 2.3% YoY in September, slowing down from 3.2% in August and missing estimates of 3.6% expansion. The data begins to evidence the impact of higher interest rates set by the Bank of Mexico (Banxico), currently at 11.25%. Meanwhile, a preliminary data release from the National Statistics Agency (INEGI) showed that economic activity contracted in October, for the first time since June 2022, compared to September.

Ahead in the docket on Thursday, the November mid-month inflation rates are expected to climb in the headline, contrarily to the core, which is foreseen to decline somewhat. On Friday, Mexico will reveal the Gross Domestic Product (GDP) for Q3, which would offer USD/MXN traders fresh impetus ahead of the end of the week.

Daily digest movers: Mexican Peso could weaken as traders await Mexico’s Q3 GDP and economic activity release

  • INEGI estimates the economy shrank 0.1% MoM in October, though annually based, it expanded by 2.9%, according to the agency Timely Indicator of Economic Activity (IOAE).
  • A Citibanamex poll suggests that 25 of 32 economists polled expect Banxico’s first rate cut in the first half of 2024.
  • The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
  • Headline annual inflation is expected at 4% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024
  • The latest US Federal Reserve (Fed) minutes showed the Fed would proceed “cautiously” in setting monetary policy and left the door open to additional tightening if warranted by data.
  • US Initial Jobless Claims missed estimates, while Durable Goods Orders plunged sharply, suggesting the economy continues to decelerate.
  • 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 remains bullish if USD/MXN stays below 17.34

The USD/MXN bearish bias remains intact, and despite forming a ‘tweezers bottom’ two candlestick chart pattern, buyers’ failure to lift prices toward the 100-day Simple Moving Average (SMA) at 17.34 opened the door to a pullback. However, if USD/MXN reclaims the latter, further upside is seen, with the next resistance at the 20-day SMA at 17.55, ahead of the 200-day SMA at 17.61.

Nevertheless, the most likely scenario would be the pair dropping toward the November 21 low of 17.06, ahead of sliding toward the 17.00 figure. Once sellers regain that level, the USD/MXN bearish bias would be cemented, and expect another test of the year-to-date (YTD) low of 16.62.

Banxico FAQs

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.