Mexican Peso gains ground against the US Dollar amid rising geopolitical tensions and upbeat data
- Mexican Peso extends its gains for second straight day, as USD/MXN drops to 18.15 despite the sour market mood.
- Mexico's economic activity exceeded estimates in August, providing a positive backdrop for the Peso.
- US 10-year bond yield pulls back from above 5%, weakening the US Dollar.
Mexican Peso (MXN) strengthens in early North American session against the US Dollar (USD) despite the ongoing escalation of the Israel-Hamas conflict threatening to spread across the region. The 10-year bond yield in the United States (US) surpassed the 5% threshold, though it has retreated, weighing on the US Dollar. The USD/MXN is trading at the 18.10 area, down by 0.7% on the day.
Mexico’s economic calendar revealed that economic activity exceeded estimates in August, according to the National Statistics Agency INEGI. The economy grew above estimates in monthly and annually-based figures. The US 10-year bond yield drop from around 5.02% to 4.86% weighed on the Greenback, opening the door for further USD/MXN losses.
Aside from this, US troops reported attacks in Syria by drones, though no injuries were reported. Geopolitics would likely continue to set the tone in the financial markets.
Daily Digest Market Movers: Mexican Peso fights back, pushing the pair below 18.20
- The Overall Index of Economic Activity in Mexico grew by 0.4% in August, exceeding the estimated 0.3%.
- Annually based, the Mexican economic activity expanded by 3.7%, smashing forecasts of 3.4%.
- Mexico’s August Retail Sales plunged 0.4% MoM, missing estimates of no change, while annually they expanded by 3.2%. This reading was below forecasts of 4.4% and trailed July’s 5.1% growth.
- Earlier this month, data showed Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
- The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6.00% threshold.
- The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso gathers momentum while USD/MXN buyers anticipate a pullback
The USD/MXN is upward biased, though the ongoing rally was capped short of testing the latest cycle high, the October 6 peak of 18.48, which gave way to a pullback to current exchange rates below the 18.15 area. The pair could aim toward 18.00 before testing the 20-day Simple Moving Average (SMA) at 17.95. A drop below that level could put the uptrend at risk, as the bulls’ latest line of defense is likely to be the 200-day SMA at 17.73.
On the other hand, if the pair aims higher and buyers reclaim 18.48, that would put the 18.50 figure into play, followed by the 19.00 mark.
Mexican Peso FAQs
What key factors drive the Mexican Peso?
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.
How do decisions of the Banxico impact the Mexican Peso?
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.
How does economic data influence the value of the Mexican Peso?
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.
How does broader risk sentiment impact the Mexican Peso?
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.
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