- Mexican Peso (MXN) extends gains against the US Dollar (USD), buoyed by a risk-on market mood.
- Mexico’s calendar will feature mid-November inflation data, expected to show a slight increase in headline CPI and a minor decrease in core CPI.
- The Bank of Mexico (Banxico) is set to release the minutes of its latest meeting, where it decided to maintain interest rates unchanged, altering its language from previous statements.
Mexican Peso (MXN) extends its gains despite being on holiday in observance of the Mexican Revolution, climbing more than 0.30% against the US Dollar (USD) amid a risk-on impulse. Broad US Dollar weakness persists, even though US Treasury bond yields advance slightly. The USD/MXN pair is trading at 17.13 after reaching a daily high of 17.25.
Mexico’s current week’s economic docket will feature the release of mid-November inflation, which is expected to show a slight jump in the headline Consumer Price Index (CPI) and a minuscule reduction in core CPI. Besides that, the Bank of Mexico (Banxico) will release its latest meeting minutes after deciding to hold rates “for some time” at current levels, changing the language of the prior five meetings from “for an extended period.” Regarding rate cuts, the swap market prices in 50 bps of cuts for the first half of 2024.
In the meantime, the World Bank revealed that Mexico lacks federal and local strategies to take advantage of the nearshoring, which could weigh on the Mexican peso’s demand. The World Bank Chief Economist for Mexico, Colombia, and Venezuela, Rafael Munoz, stated, “The country’s geographical proximity to the United States is not enough to assume that we will be winners of nearshoring.”
Daily digest movers: Mexican Peso rally extends to seven straight days, USD/MXN hits two-month low at 17.11
- The USD/MXN is trading well below the 20, 50, 100, and 200-day Simple Moving Averages (SMAs), portraying a bearish bias.
- The US Dollar Index (DXY), which measures the Greenback’s value against a basket of peers, posts losses of more than 0.20%, trading at 103.57, even though US Treasury bond yields climb.
- The US 10-year Treasury bond yield is up two basis points (bps) to 4.46%.
- Mexico’s Gross Domestic Product (GDP) figures will be revealed on Friday, alongside the third quarter current account.
- Thursday’s economic data in the US suggests the economy is decelerating as expected by the Federal Reserve, after Industrial Production plunged in October and unemployment claims have risen the most since August.
- Data published last week showed prices paid by consumers and producers in the US dipped, increasing investors’ speculations that the Fed’s tightening cycle has ended.
- The swap market suggests traders expect 100 basis points of rate cuts by the Fed in 2024.
- 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%.
- 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 maintains the upper hand, with USD/MXN eyeing 17.00
The USD/MXN bearish bias remains intact, with sellers eyeing a test of the 17.00 figure, which would open the door for further losses below the figure. The next stop will be the August 28 low of 16.69 before the year-to-date (YTD) low of 16.62.
On the other hand, if the USD/MXN breaks above the 100-day Simple Moving Average (SMA) at 17.34, it could pave the way to 17.50. However, the loss of 17.28, the November 3 low, has exposed the following demand area at the 17.00 figure.
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.
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