Mexican Peso Reaches 3-day High, Ends Week with Gain of 1.1%

Mexican Peso rose briefly to an eight-day high of 17.99 before retreating. Light economic activity this week for Mexico; May CPI, Consumer Confidence Indexes and Banxico meeting minutes will all be released during this light economic week. US Nonfarm Payrolls outshone expectations; revisions from prior months fuel speculation of Federal easing policies.

On Friday, the Mexican Peso held virtually unchanged against the US Dollar after seeingsawing within an 18.99 to 18.19 range, after mixed US jobs data spurred speculation of potential cuts by the Federal Reserve (Fed) this September – sending it spiraling upward before gradually trimming losses back and settling at 18.08; posting daily gains of only 0.02% but ending this week up roughly 1.2% higher.

Wall Street trades mixed, while the Greenback shows signs of recovery against Mexico. Mexico’s economic calendar remains quiet; traders anticipate next week’s release of CPI data for May, Consumer Confidence results and minutes from Banxico’s last monetary policy meeting as potential catalysts to take position against their national currency.

US nonfarm payrolls for June were within expectations, though downward revisions to April and May’s figures led traders to place greater bets that the Federal Reserve will start its quantitative easing cycle by September.

According to additional data provided by the US Bureau of Labor Statistics (BLS), Average Hourly Earnings (AHE) have remained static month over month but declined year-on-year in June and that Unemployment Rate had increased, among others.

Since the data release, US Treasury yields have fallen precipitously with 10-year benchmark note rate declining six and half basis points to 4.284% – creating headwinds for the US Dollar Index which tracks it performance against six currencies – although early losses were reduced slightly and current value stands around 105.00.

CME FedWatch Tool indicates that odds for a September 2024 cut have significantly increased from 66% a day ago.

Market Movers for Today include Mexican Peso’s ascension amid US Dollar weakness as its growth accelerates further.

Banxico’s survey indicated that economists project that Gross Domestic Product (GDP) for 2018 to end at 2.0%, down from its earlier projection of 2.1%. They anticipate Banxico will cut rates from 11.00% to 10.25% as planned in May compared with projections for 10.00% reduction.
Analysts in Mexico predict their economy might slow but avoid recession according to data provided by National Statistics Agency INEGI Coincidence Indicator. Yet some believe reforms enacted under President Andres Manuel Lopez Obrador (AMLO), such as judiciary reform, could compromise creditworthiness of Mexico.
US Nonfarm Payrolls outpaced expectations by growing by 206K versus an estimate of 190K and April and May revisions were revised downward from 165K to 108K and 272K to 218K respectively, which brought average hourly earnings down YoY from 4.1% to 3.9% as expected while unemployment increased from 4.0% to 4.1% – these results exceeded estimates in both regards.

Technical analysis: Mexican Peso remains near weekly lows while USD/MXN stays around 18.10

The USD/MXN exchange rate dropped to an eight-day low of 17.99 before finding bids that propelled it back up toward 18.10 territory. Friday’s price action has produced a “Doji candle”, signalling neither buyers nor sellers are winning in this battle to keep trading within 18.00-18.10 territory over time.

Momentum shows signs of stabilizing as Relative Strength Index (RSI) began trending up once more following three days of declining readings, further supporting USD/MXN range-bound trading conditions.

For a bullish rebound to occur in USD/MXN, buyers need to overcome 18.10 before rallying above June 28’s high of 18.59; then buyers can challenge 18.99 as an all-time high this year. In contrast, sellers could trigger further downside momentum by dropping below 18.00; which may extend downward towards December 5th’s support at 17.56 as well as 1737 where 50 day Simple Moving Average (SMA) lies.

Mexican Peso (MXN) is by far one of the most actively traded currencies among its Latin American peers. At its heart lies Mexico’s value; determined largely by economic performance and central bank policy; foreign investments coming in through various channels; as well as levels of remittances coming back home by Mexicans who reside overseas – particularly those living in the US. Geopolitical trends may also impact MXN: for instance, nearshoring (when firms relocate manufacturing capacity and supply chains closer to home countries) has also been seen as an accelerator of MXN as Mexico serves as an integral manufacturing hub in North America. Oil prices also play a part in shaping MXN; Mexico being one of the key exporters of oil products is another key catalyst of its value.

Mexico’s central bank, Banxico, strives to keep inflation at stable yet manageable levels (at or close to their target of 3% as defined within a tolerance band of between 2% and 4%). To do this, Banxico sets appropriate interest rates. When inflation becomes excessively high, Banxico attempts to curb it by raising interest rates which makes borrowing money more costly for households and businesses; ultimately lowering demand in the economy overall and strengthening MXN value over time while lower interest rates often weakening it further.

Macroeconomic data releases provide vital assessments of the economy’s state, which in turn impacts MXN valuation. A strong Mexican economy with high economic growth, low unemployment rates and strong confidence can have positive ramifications on MXN valuation – drawing in foreign investments while potentially prompting the Bank of Mexico (Banxico) to raise interest rates if coupled with inflationary trends. If however, economic data proves less than robust, MXN may depreciate accordingly.

As an emerging-market currency, the Mexican Peso (MXN) typically thrives during periods of low broader market risks; investors perceive these conditions to be beneficial and engage with investments that carry greater risk. Conversely, MXN falls during times of market turbulence or economic uncertainty as investors seek safer havens instead of higher risk investments.