- Mexican Peso recovers from around weekly lows, and reclaims the 100-day SMA.
- Mexico’s Producer Price Index was softer than estimated, keeping Banxico’s hopes of easing policy next year alive.
- US Nonfarm Payrolls in November were better than foreseen, in contrast to previously released jobs data.
Mexican Peso (MXN) rallies against the US Dollar (USD) during the North American session on Friday, although data from the United States (US) showed the labor market is not as soft as suggested by previously released data during the week. Consequently, traders pared bets on rate cuts by the US Federal Reserve (Fed) for the next year while the Greenback rose. Nevertheless, the Mexican currency remains strong, as depicted by the USD/MXN trading at 17.32, losing 0.80% on the day.
Mexico’s economic docket revealed that inflation on the producer side was softer compared to October’s data, revealed the National Statistics Agency (INEGI). That reinforces the thesis that prices are slowing down, which leaves the Bank of Mexico (Banxico) officials scratching their heads as consumer inflation rises.
Across the border, the US Bureau of Labor Statistics (BLS) revealed the labor market remains strong, with the economy adding more jobs than estimated by market participants, pushing the Unemployment Rate further away from projections of the Federal Reserve.
Daily digest market movers: Mexican Peso on the offensive despite solid US jobs report
- Mexico’s Produce Price Index (PPI) rose by 1.20% YoY in November, below October’s 1.30%. In month-over-month figures, the PPI rate plunged from 0.5% in October to -0.4% in November.
- The latest consumer inflation report in Mexico missed forecasts and exceeded October’s reading.
- Banxico’s officials recently expressed their desire to ease monetary policy, though the divergence in consumer and producer inflation could prevent a rate cut by the first quarter of 2024.
- Nevertheless, there is a dissenter as Deputy Governor Irene Espinosa pushed back and said inflationary risks remain and are growing.
- US Nonfarm Payrolls exceeded forecasts of 180K and rose by 199K in November, while the Unemployment Rate slid to 3.7% from 3.9%.
- Average Hourly Earnings, seen as a measure of inflation, grew as expected by 4%, while monthly data advanced by 0.4%, above previous month’s 0.2%.
- Following the US employment report, jobs data suggests the labor market is cooling, but at a slower pace than expected by traders. Per the market’s reaction, investors were overly aggressive on the Fed rate cut expectations, with market participants pairing the Federal Reserve’s rate-cut bets for the next year. According to data from the Chicago Board of Trade (CBOT), 120 basis points of rate cuts are estimated, 20 bps less than a week ago.
Technical Analysis: Mexican Peso buyers regain control as the USD/MXN slumps below the 100-day SMA
The USD/MXN shifted gears and is sliding below the 100-day Simple Moving Average (SMA), which lies at 17.39, suggesting that sellers are in charge but they would need a daily close below that level to extend its losses. The first support level is seen at the current week’s low of 17.16, followed by the area within the 17.00/05 range.
On the other hand, if USD/MXN buyers reclaim the 100-day SMA, that could open the door to challenging the 17.50 psychological level. A breach of the latter will expose the 200-day SMA at 17.55 will be exposed, followed by the 50-day SMA at 17.67.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for 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 maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling 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. On the contrary, lower interest rates tend to weaken MXN.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.