Mexican Peso trims some gains with all eyes on US Nonfarm Payrolls data
- The Mexican Peso is trading moderately lower with investors bracing for the US employment reading.
- Weak US macroeconomic data and some hawkish comments by Banxico’s deputy Governor have buoyed the MXN this week.
- Technically, USD/MXN’s double top at 20.80 suggests the possibility of a deeper correction.
The Mexican Peso (MXN) is trading with moderate losses on Friday against the US Dollar. The USD/MXN pair ticks up after having declined for the last three days, with investors wary of betting against the US Dollar (USD) ahead of the release of November’s US Nonfarm Payrolls report at 13:30 GMT.
Data released on Thursday showed that claims for unemployment benefits in the US increased beyond expectations last week. This, coupled with the lower-than-expected increase in the ADP private-employment gauge, has been weighing on the US Dollar across the board.
In Mexico, Banxico Deputy Governor Irene Espinosa warned against too-aggressive interest-rate cuts considering that an increase in the minimum wage will exert upside pressure on inflation. This has provided some support to the MXN.
Daily digest market movers: Mexican Peso rally halts
- According to a survey from Citi Mexico, most of the economists polled see the Mexican central bank cutting interest rates by 25 basis points in December, with GDP growing by 1.5% in 2024 and by 1% in 2025.
- In the US, Nonfarm payrolls are expected to have increased by 200,000 in November, while the unemployment rate is also expected to tick up to 4.2%. These figures support the view of a 25 bps Fed rate cut in December and gradual easing in 2025.
- Earlier this week, Federal Reserve (Fed) chairman, Jerome Powell, highlighted the stress of the US economy and reiterated that the bank should be cautious about rate cuts. These comments suggest that the bank’s easing cycle might target a higher terminal rate than previously anticipated.
- The CME Group’s Fed Watch tool shows an almost 70% chance of a 25 bps rate cut in December and two more cuts in 2025.
Mexican Peso technical outlook: USD/MXN tests support at 20.15
The immediate bias for USD/MXN is negative as it has retreated from the late November highs at around 20.80. However, the pair is also facing a strong support area between 20.05 and 20.15.
The 4-hour Relative Strength Index (RSI) is in bearish territory at around 38, and the double top at 20.80 suggests the possibility of a deeper correction.
Below the 20.00 psychological level, which is also the neckline of the mentioned double top, the next target would be November´s low at 19.75. Resistances are the December 2 high, at 20.60 and November’s peak, at 20.80.
USD/MXN 4-Hour Chart
Mexican Peso FAQs
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.
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.
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.
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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