- Mexican Peso experiences some volatility to start the week, though it resumed its gains of more than 0.20%.
- Banxico’s Governor Victoria Rodriguez Ceja’s comments on potential rate cuts next year add pressure on the Mexican Peso.
- USD/MXN traders shrug off dovish remarks by Banxico’s Governor Victoria Rodriguez Ceja, which sees potential rate cuts in 2024.
Mexican Peso (MXN) posts gains against the US Dollar (USD) after data revealed by the New York Fed showed inflation is cooling, according to US households, on Monday. At the time of writing, the USD/MXN is trading at 17.59, down 0.22%, after hitting a daily high of 17.72.
Mexico’s economic docket is empty following last Thursday’s Bank of Mexico – also known as Banxico – decision to hold rates at 11.25% while removing hawkish comments from its statement, which weighed on the Mexican Peso. Dovish remarks by Banxico’s Governor Victoria Rodriguez Ceja kept the USD/MXN trading downward pressured, but investors shrugged off Rodriguez’s comments, as the exotic pair trended lower, printing a daily low of 17.57.
The US economic docket released the New York Fed Inflation Expectations survey. According to the data, American households estimated inflation for one year at 3.6% in October, which was slightly below last month’s figure of 3.7%. The five-year inflation outlook dipped to 2.7% from the previous reading of 2.8%.
Daily digest movers: Mexican Peso remains range bound despite market sentiment shifting sour
- Banxico’s Governor Victoria Rodriguez commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
- Industrial production in Mexico cooled down, according to data provided by the National Statistics Agency (INEGI) on November 10. The output grew by 3.9% YoY in September, below the 4.4% forecast, trailing August’s 5.2%.
- The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
- Last Thursday’s hawkish remarks by the US Federal Reserve Chairman Jerome Powell sponsored the USD/MXN a leg up, toward 17.93, before paring some losses.
- Mexico´s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
- Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso remains steady despite Golden Cross surfacing, USD/MXN stays in the green
The USD/MXN remains neutral to upward biased, at a brisk of breaking crucial resistance levels, like the 200-day Simple Moving Average (SMA) at 17.66, followed by the 50-day SMA at 17.70. Once those two levels are breached, the next resistance would emerge at the 20-day SMA at 17.91 before buyers could lift the spot price towards the 18.00 figure.
Conversely, key support levels lie at 17.50, followed by the November 9 low at 17.47 and the 100-day Simple Moving Average (SMA) at 17.33. A loss of the latter will expose the 17.00 psychological level before the pair aims to test the year-to-date (YTD) low of 16.62.
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.