Mexican peso erases recent gains as bulls reload

VaselineAugust 19, 2024

0 3 minutes read

Mexican peso erases recent gains as bulls reload

The Mexican peso returned 0.6% against the US dollar on Monday.
Mexico has limited representation on the economic calendar this week.
Jackson Hole looms large next week alongside US PMI numbers.

The Mexican peso (MXN) returned six-tenths of one percent to greenback bidders on Monday, paring recent gains as peso bulls took a lull. The US dollar is generally softer to start the new trading week, but recent positive flows for the peso briefly reversed its direction.

Mexico has a reduced release schedule in this week’s data file, and all figures to be printed this week on the Peso side are strictly low-level numbers. Mexican retail sales for the year to June are due on Tuesday and are expected to have contracted 1.8 percent from a previous 0.3 percent increase.

Mexico’s primary and core inflation figures are released on Thursday. Core inflation is forecast to rise slightly to 0.19% from 0.18% in the first half of August, while headline inflation will ease to 0.13% over the same period, down sharply from previous 0.71%.

Digest Daily Market Moves: Greenback Rises, But Peso Flows Need a Breather

The peso auction reversed course on Monday, pushing the MXN lower against the US dollar.
Despite a brief lull in buying pressure, the MXN is still up 6.6% against the USD as the Peso recovers from a 22-month low.
Markets are generally looking ahead to this week’s launch of the Jackson Hole Economic Symposium, where rate cut-hungry investors will be hanging on every word from Federal Reserve (Fed) policymakers.
Recent bets on a double dip in September have eased significantly after peaking at 70% two weeks ago. According to CME’s FedWatch tool, rate markets are pricing in a slim one-in-five chance of a 50 bps cut on September 18.
Markets generally have another 25bps cut in September at full prices, with cuts of three to four quarters of a point expected by the end of the year.

Mexican peso price forecast: Pullback leaves peso bidders poised for another leg, but technical limits remain

The Mexican peso’s recent rally against the US dollar has sent USD/MXN bids drifting towards 18.50. However, a long-term uptrend on the chart leaves Peso bidders facing an accelerating pattern of higher lows as the greenback is higher against the MXN.

Price action is poised for a continued decline to the 50-day exponential moving average (EMA) at 18.35, with a tough level assessed at the uptrend line drawn from the April lows near 16.25.

USD/MXN Daily Chart

Frequently asked questions about the Mexican peso

The Mexican peso (MXN) is the most traded currency among its Latin American peers. Its value is largely determined by the performance of the Mexican economy, the policy of the country’s central bank, the volume of foreign investment in the country, and even the level of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the MXN: for example, nearshoring – or the decision by some firms to relocate production capacity and supply chains closer to their home countries – is also seen as a catalyst for the currency Mexican, as the country is considered a key manufacturing hub on the American continent. Another catalyst for the 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 keep inflation at low and stable levels (at or near its 3% target, the midpoint in a tolerance band of 2% to 4% ). For this purpose, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus reducing 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. Conversely, lower interest rates tend to weaken the MXN.

Macroeconomic data is essential to assess the state of the economy and can impact the valuation of the Mexican peso (MXN). A strong Mexican economy based on high economic growth, low unemployment and high confidence is good for the MXN. Not only does it attract more foreign investment, it can encourage the Bank of Mexico (Banxico) to raise interest rates, especially if this force is associated with increased inflation. However, if economic data is weak, the MXN is likely to depreciate.

As an emerging market currency, the Mexican peso (MXN) tends to struggle during periods of risk, or when investors perceive broader market risks to be low and are therefore willing to commit to investments that carry more risk. great. Conversely, MXN tends to weaken during periods of market turbulence or economic uncertainty as investors tend to sell riskier assets and flee to more stable safe havens.

VaselineAugust 19, 2024

0 3 minutes read