The Mexican Peso’s Response to Economic Data
The Mexican Peso has been on a downward trend against the US Dollar for the third consecutive day, despite positive economic data indicating growth in the country’s economy and a decrease in inflation. This juxtaposition can be attributed to the influence of strong US economic indicators and a general sense of risk aversion in the market, which has bolstered the USD/MXN exchange rate to 20.45, marking a 0.27% increase.
Economic Data Insights
- INEGI reports Q3 GDP growth exceeding expectations, showcasing a positive trend in the Mexican economy.
- November’s mid-month inflation in Mexico has shown a decline, hinting at the potential for further easing of policy by the Bank of Mexico (Banxico).
- US economic indicators, including S&P Global Flash PMIs and UoM Consumer Sentiment, have contributed to the strength of the US Dollar.
The recent approval by Mexico’s Chamber of Deputies to dissolve autonomous bodies has raised concerns among experts, potentially jeopardizing Mexico’s standing in the USMCA free trade agreement. Additionally, statements from Bank of Mexico Governor Victoria Rodriguez Ceja indicate a willingness to reduce interest rates if inflation continues to decline, which could put further pressure on the Peso.
Market sentiment has shifted towards caution regarding potential rate cuts by the Federal Reserve, as indicated by a decrease in the probability of a rate cut at the December meeting according to the CME FedWatch Tool.
Daily Market Movers
- Mexico’s mid-month inflation rate easing in early November has increased expectations for Banxico to ease policy further.
- Both headline and core inflation in Mexico have shown declines, supporting the case for monetary policy easing.
- US economic data, including PMIs and Consumer Sentiment, have shown positive trends, influencing market dynamics.
- Investors anticipate a slight easing by the Federal Reserve by the end of 2024, based on futures contract data.
- Moody’s recent change in Mexico’s credit outlook to negative reflects concerns over constitutional reforms impacting the country’s economic and fiscal strength.
USD/MXN Technical Outlook
Despite fluctuations, the USD/MXN exchange rate remains on an upward trajectory, surpassing the 20.45 mark. Key technical levels to watch include:
- Resistance levels at 20.55, 20.69, and the year-to-date high of 20.80.
- Support levels at 20.00, the 50-day SMA, and the November 7 low around 19.75/78.
- Indicators like the RSI signal further upside potential in the short to medium term.
Banxico FAQs
The Bank of Mexico, or Banxico, plays a crucial role in guiding Mexico’s monetary policy and preserving the value of the Mexican Peso. Key points to note include:
- Banxico aims to maintain low and stable inflation levels, typically targeting a range of 2% to 4%.
- Interest rate decisions by Banxico impact the strength of the Mexican Peso, with higher rates generally benefiting the currency.
- Banxico’s policy decisions are often influenced by the US Federal Reserve’s actions, with close monitoring of rate differentials between the two central banks.