Daily digest market movers: Mexican Peso on defensive amid dovish Banxico
- Estimates that Banxico will lower the interest rate from 11.25% to 11% puts “some” pressure on the Mexican currency, which could lift the USD/MXN toward the 17.00 mark.
- Mexico’s economic data released on Tuesday:
- Aggregate Demand rose by 0.3% QoQ in Q4, up from 0%. On an annual basis decelerated from 2.7% to 2.6%.
- Private Spending on a quarterly basis slowed from 1.2% to 0.9%. On a yearly basis, it improved from 4.3% to 5.1%.
- The USD/MXN is being driven by the reduction of interest rate spreads between Mexico and the United States. This could bolster and set the USD/MXN direction toward the 17.00 figure.
- On March 21, Banxico is expected to decrease interest rates, even though it could feature a 3-2 vote split. Recent speeches and media appearances show that Banxico’s Governing Council is divided, with Governor Victoria Rodriguez Ceja, Omar Mejia Castelazo and Galia Borja Gomez leaning dovish. On the hawkish front lie Jonathan Heath and Irene Espinosa Cantellano.
- An economic slowdown in Mexico is the main event that could spark Banxico’s first rate cut as the central bank has adjusted its economic projections to the downside. Mexico’s central bank expects the economy to grow 2.8% YoY in 2024, down from 3% and maintaining at 1.5% for 2025.
- US Building Permits in February rose 1.9% from 1.495 million to 1.518 million, suggesting that demand continues to increase.
- Housing Starts increased by 10.7% compared to January’s data as starts jumped from 1.425 million to 1.521 million.
- The latest inflation figures in the United States prompted investors to price in a less dovish stance. Money market futures had adjusted their rate cut expectations more in line with the Fed as they foresee the Federal Funds Rate (FFR) at 4.71% toward year end. The next Fed meeting is scheduled for March 19-20 next week, and analysts estimate no change to its Federal Funds Rates (FFR).
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