Mexican peso traders are expecting a busy week for the currency’s major peers

Vaseline2 weeks ago

0 4 minutes read

Mexican peso traders are expecting a busy week for the currency’s major peers

The Mexican peso fluctuates between weak gains and losses on Monday.
Next week promises to be a busy one for traders of the Peso’s key counterparts given the scheduled events and dates.
USD/MXN is extending its steady rise in a rising channel.

The Mexican peso (MXN) is between gains and losses on Monday after falling an average of 1.5% across its major pairs last week. Bank of Mexico’s (Banxico) decision to cut interest rates by 25 basis points (0.25%) at its September meeting on Thursday, cutting the official cash rate to 10.50%, as well as a downward revision to forecasts his for the economy, contributed to the devaluation of the Peso in general.

Data showing a widening trade deficit added to the negativity surrounding the Mexican peso after official figures showed it rose to $4.868 billion in August from $1.278 billion a year ago. Those numbers significantly beat market expectations for a gap of $0.5 trillion and hit a new two-year high.

The approach of the United States (US) election and the prospect of former President Donald Trump winning and then imposing an “America First” agenda with negative implications for trade with Mexico further adds to concerns about Mexico’s persistent trade deficit, which is rising to $10.438 billion for the first eight months of 2024.

Mexican peso traders are bracing for a heavy data week

The Mexican peso fluctuated between slight gains and losses on Monday, ahead of a busy week of macroeconomic data and key events for its major partners – the US dollar (USD), euro (EUR) and British pound (GBP).

On Monday, speeches by European Central Bank (ECB) President Christine Lagarde and Federal Reserve (Fed) Chairman Jerome Powell could have an impact on the Euro and USD, respectively. Recent weak data from the eurozone in particular is leading to market speculation that the ECB will need to be more aggressive in cutting interest rates to help boost growth, potentially weakening the euro. In Mexico, fiscal balance data for August will be released, revealing the government’s spending deficit.

On Tuesday, preliminary eurozone inflation data for September, and then non-farm payrolls (NFP) on Friday, are other key data for key peso pairs. The NFP release will be closely watched for signs of a slowdown in the labor market after the Fed said it is now considering its full-employment mandate as part of its interest rate decision-making process.

Technical Analysis: USD/MXN trends higher within the channel

USD/MXN is steadily moving higher in its ascending channel as it continues its bullish trend in the short, medium and long term.

USD/MXN Daily Chart

Friday’s close above 19.68 (high since September 25) provided more bullish certainty for the pair in the near term towards a target of 20.15, the high of the year reached in early September.

A further break above 19.76 (September 27 high) would create a higher high and provide further evidence of an extended uptrend.

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 havens.

Vaseline2 weeks ago

0 4 minutes read