- Mexican Peso records slight losses against the US Dollar, influenced by US inflation data and the rise in US Treasury yields.
- Banxico maintains a less hawkish stance on interest rates, with potential rate cuts hinted for the next year, capping the Peso’s advancement.
- Banxico’s Deputy Governor Jonathan Heath reiterated they could cut rates next year, though the stance would remain restrictive.
Mexican Peso (MXN) registers minimal losses against the US Dollar (USD) in early morning trading on Wednesday, following Tuesday’s 1.51% gains, due to soft inflation data in the United States (US). Even though a risk-on impulse usually benefits risk-perceived currencies like the Peso, a jump in US Treasury bond yields capped the USD/MXN fall, which exchanges hands at 17.35, virtually unchanged on the day.
At the latest Bank of Mexico (Banxico) monetary policy decision on November 9, the Government Board held rates unchanged and sounded less hawkish, saying that rates need to be at the current level for “some time.” On Monday, Governor Victoria Rodriguez Ceja said that rate cuts could be in play next year; words echoed by Deputy Governor Jonathan Heath on Tuesday. He said that the monetary policy will remain restrictive despite cutting interest rates.
On the data front, Mexico’s calendar is empty. In the US, data showed prices paid by producers declined, while retail sales shrank in October, but previous figures were upward revised, suggesting consumers’ resilience despite the Fed’s restrictive stance.
Daily digest movers: Mexican Peso trims some of its Tuesday’s gains, as Banxico adopts a neutral stance
- The US Producer Price Index (PPI) rose 1.3% in the year to October, below estimates of 1.9% and monthly deflated 0.5%, beneath forecasts of a 0.1% expansion.
- Retail Sales fell 0.1% MoM, less than the 0.3% contraction expected. Sales in the 12-month period rose by 2.5%, below September’s 4.1% increase.
- Banxico’s Deputy Governor Jonathan Heath added the Government Board continues to monitor real rates, which currently lie at around 7%.
- Heath said Banxico wouldn’t rely on other countries – usually, Banxico reacts to the US Federal Reserve’s decisions – and said they would depend on incoming data and how inflation expectations evolve.
- On Monday, Banxico’s Governor Victoria Rodriguez Ceja commented that the easing inflationary outlook could pave the way for discussing possible rate cuts. She said that monetary policy loosening could be gradual but not necessarily imply continuous rate cuts, adding that the board would consider macroeconomic conditions, adopting a data-dependent approach.
- The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
- Mexico’s economy remains resilient after October’s S&P Global Manufacturing PMI improved to 52.1 from 49.8, and the Gross Domestic Product (GDP) expanded by 3.3% YoY in the third quarter.
- Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).
Technical Analysis: Mexican Peso almost flat, with USD/MXN hovering around the 100-day SMA
The USD/MXN pair bias has shifted to neutral downwards in the short term, and the pair is on the brink of breaking crucial support levels like the 100-day Simple Moving Average (SMA) at 17.34, followed by the psychological 17.00 figure. The pair could shift bearishly as the 20-day SMA accelerates and breaks below an area comprised of the 50 and 200-day SMAs at around 17.70-17.65. If the bearish cross completes, it would shift the broader trend downwards and open the door to challenging the year-to-date (YTD) low of 16.62, printed in July.
On the other hand, if buyers keep the USD/MXN pair above 17.33 and reclaim 17.50 in the near term, they could remain hopeful of testing key resistance levels, like the 200-day SMA at 17.65, ahead of the 50-day SMA at 17.70. Once cleared, the next resistance emerges at the 20-day SMA at 17.87 before buyers could lift the spot price towards the 18.00 figure.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
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