Mexican peso falls as inflation data fuels expectations of Banxico rate cut

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Mexican peso falls as inflation data fuels expectations of Banxico rate cut

The Mexican peso is on the defensive as September inflation targets Banxico’s 3% target.
Banxico is expected to cut rates further after a cut to 10.50% in September, with further easing projected until the end of 2024.
Traders await the release of the Fed’s September meeting minutes and the US CPI report on Thursday as US Treasury yields and the dollar rise.

The Mexican peso depreciated against the US dollar on Wednesday after an inflation report opened the door for more easing by the Bank of Mexico (Banxico). Traders are also watching the release of the minutes of the Federal Reserve’s (Fed) September meeting for clues on the path of monetary policy. USD/MXN is trading at 19.40, up over 0.40%.

Mexico’s inflation eased in September, according to the Instituto Nacional de Estadistica Geografia e Informatica (INEGI). The headline and core consumer price index (CPI) were below estimates and trending towards Banxico’s target of 3% plus or minus 1%.

USD/MXN aimed higher as data suggests Banxico may be more aggressive in its easing cycle. On Monday, Banxico Governor Victoria Rodriguez said the board could consider further cuts to its benchmark rate while speaking to Reuters.

Banxico cut rates to 10.50% in September and expects to cut by at least 50 additional basis points (bps) towards the end of 2024. The next meetings are on November 14 and December 19.

The minutes of the September 17-18 Fed meeting are expected in the US and will appear in the afternoon session. Fed Governor Michele Bowman was the lone dissenter who voted for a 25 bps rate cut. According to Brown Brothers Harriman analysts, “the minutes could reveal that other Fed officials balked at 50bp before being persuaded to vote with the majority.”

Following last Friday’s non-farm payrolls (NFP) report, Fed officials took a more cautious stance. On Tuesday, Vice President Philip Jefferson said he remains dependent on the data and that his approach will be meeting-by-meeting. Boston Fed President Susan Collins said further tapering was likely needed, but it would be data-driven.

Meanwhile, the U.S. dollar index ( DXY ), which tracks the greenback’s performance against six other currencies, rose 0.37 percent to 102.85, supported by rising U.S. Treasury yields.

Daily Market Reasons: Mexican Peso Falls on Inflation Report

Last Thursday, Mexico’s Supreme Court voted eight to three to “consider a constitutional challenge to the controversial judicial review passed last month,” which would allow Supreme Court judges and magistrates to be chosen by electoral vote.
Mexico’s CPI fell in September from 4.99% to 4.58% on the year, beating estimates of 4.62%. Monthly inflation was 0.05%, below forecasts of 0.1%.
Core CPI rose 3.91% YoY, below forecasts of 3.95%. Monthly core inflation was 0.28%, up from 0.22% but below estimates of 0.32%.
According to the Banxico survey, the central bank is expected to cut rates by 50 bps to 10% for the rest of 2024. Meanwhile, the USD/MXN exchange rate will close at around 19.69.
Mexico’s economy is expected to grow 1.45% in 2024, down from August’s 1.57%.
Data from the Chicago Board of Trade (CBOT) via the fed funds rate futures contract in December show that investors expect 48 bps of easing by the Fed towards the end of 2024.
Market participants ignored a 50 bps cut. The odds of a 25 bps cut are 81.4%, while the odds of keeping rates unchanged are 18.6%, according to CME FedWatch Tool data.

USD/MXN Technical Outlook: Mexican Peso Extends Losses as USD/MXN Rises Above 19.40

USD/MXN has regained its 50-day simple moving average (SMA) at 19.37, which could open the door for further upside. Momentum favors buyers as shown by the bullish relative strength index (RSI) reading. Therefore, the exotic pair is heading up.

If USD/MXN breaks above the psychological level of 19.50, look for buyers driving the exchange towards the daily high of 19.82 on October 1 before 20.00. Next will be the YTD peak of 20.22.

For a bearish resumption, if USD/MXN breaks below the October 4 wing low of 19.10, the 19.00 figure will be exposed. Once broken, the next support would be the 100-day SMA at 18.64.

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, 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.

Vaseline2 days ago

0 4 minutes read

Daily Market Reasons: Mexican Peso Falls on Inflation Report

USD/MXN Technical Outlook: Mexican Peso Extends Losses as USD/MXN Rises Above 19.40

Frequently asked questions about the Mexican peso

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