Mexican peso rises on strong US data

VaselineSeptember 17, 2024

0 3 minutes read

The Mexican peso remains weak as US retail sales and industrial production beat estimates.
Mexico’s second-quarter aggregate demand and private spending data will be released on Wednesday as the Fed’s rate decision approaches.
The US dollar index is up 0.20% at 100.92 as traders maintain 61% odds on a 50bps Fed rate cut.

The Mexican peso erased some of its losses against the U.S. dollar, gaining about 0.30 percent after better-than-expected U.S. retail sales data. Despite this, expectations that the Federal Reserve (Fed) will cut rates by 50 basis points (bps) remained unchanged as the Fed begins its two-day meeting. USD/MXN is trading at 19.18 after hitting a daily high of 19.40.

The US Commerce Department revealed that August retail sales fared better than consensus. The data showed that consumers remain resilient, even as hiring and wage growth show signs of moderating. Other data showed industrial production rose in August after contracting in July.

Following the data, the Greenback extended its gains as seen by the USD/MXN pair. According to the US dollar index ( DXY ), it rose about 0.20% to 100.92, even as odds for a 50bps rate cut by the Fed remained at 61%, while odds for a quarter percentage point are 39%.

Meanwhile, the Atlanta Fed GDP Now Index, which calculates estimates for Q3 Gross Domestic Product (GDP) numbers, rose from 2.5% to 3%.

On Wednesday, Mexico’s economic file will present aggregate demand for Q2 alongside private spending figures. Across the border, the US economic program will present housing data ahead of the Federal Open Market Committee’s (FOMC) monetary policy decision. After that, Fed Chairman Jerome Powell will cross the line.

Daily market reasons: Mexican peso advances despite solid US data

USD/MXN would continue to be driven by market sentiment and expectations for a further Fed rate cut.
US retail sales in August rose 0.1% on the month, beating estimates of -0.2%. Year-over-year, the numbers rose 2.1 percent, down from 2.9 percent in July.
Industrial production rose 0.8% month-on-month in August, up from a -0.9% contraction in the previous month.
Data from the Chicago Board of Trade suggests the Fed will cut by at least 111 basis points this year, according to the December 2024 federal funds rate futures contract.

USD/MXN Technical Outlook: Mexican peso rises as USD/MXN slips below 19.20

USD/MXN remains partially bullish despite last week’s drop to 19.15. Momentum suggests that the exotic pair could consolidate in the short term, as depicted by the Relative Strength Index (RSI) that will pay off.

That said, if USD/MXN climbs above 19.50, the next resistance would be the psychological figure of 20.00. Conversely, if USD/MXN breaks below 19.15, key support levels emerge, such as the daily low of 19.02 on August 23 ahead of the 50-day simple moving average (SMA) at 18.99.

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.

VaselineSeptember 17, 2024

0 3 minutes read

Daily market reasons: Mexican peso advances despite solid US data

USD/MXN Technical Outlook: Mexican peso rises as USD/MXN slips below 19.20

Frequently asked questions about the Mexican peso

Vaseline

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