The Mexican Peso (MXN) continues to climb against the US Dollar (USD), breaking through key support at the 50-day Simple Moving Average (SMA) of 20.42. Currently, the USD/MXN pair is trading at around 20.27, experiencing a slight dip of 0.09%.
Recently, disappointing retail sales figures in the US have exerted downward pressure on the USD/MXN exchange rate, as uncertainties loom over the US economic growth outlook.
Even though consumer inflation in the US showed an increase, certain elements within the Producer Price Index (PPI)—which contribute to the Federal Reserve’s key inflation measure, the Core Personal Consumption Expenditures (PCE) Price Index—hint at a potential drop in pricing, bolstering expectations for Federal Reserve easing.
Following the recent data release, insights from the Chicago Board of Trade indicate that investors have factored in a potential 43 basis points cut.
However, Philadelphia Fed President Patrick Harker has communicated that given the current economic situation, maintaining a consistent interest rate policy is appropriate. While acknowledging the persistence of inflation, he emphasized that the Fed’s existing stance remains geared towards curbing inflation.
This week, all eyes are on Mexico, with significant economic releases on the horizon, including December’s Retail Sales, Banco de Mexico (Banxico) meeting minutes, and Q4 2024’s Gross Domestic Product (GDP) statistics.
Daily digest market movers: Mexican Peso on the Rise Despite Banxico’s Cautious Approach
The divergent monetary policies between Banxico and the Fed suggest a potential upward movement for USD/MXN, given the Fed’s inclination to hold rates over a longer period, contrasting with Banxico’s expectation to lower rates by 50 basis points in its forthcoming meeting. On another note, the US Dollar Index (DXY) is steady at 106.77, which poses a challenge for USD/MXN.
While there have been ongoing trade disputes between the US and Mexico, previous agreements have eased tensions. However, traders should remain cautious as a 30-day pause is in place, and tensions could resurface towards the end of February.
USD/MXN Technical Outlook: Mexican Peso Strengthens as USD/MXN Breaks Below 50-day SMA
On Monday, USD/MXN leaned towards the downside, inching closer to the 100-day SMA at 20.24. If this level is breached, it could signal further declines. Additionally, the Relative Strength Index (RSI) has turned negative, suggesting the pair might aim for the key psychological level of 20.00.
Should prices fall below this mark, look for potential support at the October 18 low of 19.64 and the 200-day SMA at 19.37. Conversely, if USD/MXN manages to rebound above the 50-day SMA, resistance could emerge around 20.50, then at January 17’s peak of 20.90, followed by 21.00 and this year’s high of 21.29.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most actively traded currency in Latin America. Its value is largely influenced by several factors: the health of the Mexican economy, policies by the central bank, the volume of foreign investments, and remittances—especially those from the US. Geopolitical events also play a role; for instance, the trend of nearshoring, where companies relocate manufacturing closer to home, bolsters the Peso as Mexico becomes a crucial manufacturing center in the Americas. Additionally, oil prices impact the currency due to Mexico’s significant export activities in the oil sector.
Banxico’s main aim is to keep inflation steady, targeting around 3% within a 2-4% acceptable range, achieved through interest rate adjustments. When inflation rises, Banxico might raise rates to cool off borrowing and spending, which in turn could enhance the Peso’s allure to investors. Conversely, lower rates might weaken the currency.
Economic indicators play a critical role in assessing the Peso’s value. A robust Mexican economy—characterized by strong growth, low unemployment, and high confidence—tends to strengthen the Peso. This can attract foreign investments and potentially prompt Banxico to hike interest rates, especially if inflation is also on the rise. Weak economic indicators, on the other hand, could lead to the Peso’s depreciation.
As an emerging market currency, the Peso typically benefits during periods of lower market risks, attracting investors willing to gamble on higher-risk assets. However, during economic uncertainty, the Peso often suffers as investors pivot towards safer investments.
