The Mexican Peso has experienced a minor decrease against the US Dollar, indicating a cautious sentiment in anticipation of the release of the US Consumer Price Index (CPI). The US Dollar has regained some stability following last week’s decline, supported by adjustments in Treasury yields. Concurrently, Mexico’s Industrial Production data is projected to reveal a monthly decrease, despite annual growth.
Market Movers: Mexican Peso and US Dollar
The Mexican Peso remained relatively stable against the US Dollar on Monday, as market participants await the release of the latest inflation report in the United States. The US Dollar is recovering from last week’s losses, with US Treasury yields regaining some ground. However, the USD/MXN is trading at 16.79, down 0.02%.
On Tuesday, Mexico’s economic calendar will feature Industrial Production data, which is projected to drop by -0.7% monthly and grow by 2.2% annually. The US Bureau of Labor Statistics (BLS) is also expected to release February’s Consumer Price Index (CPI) on the same day.
US CPI and Fed Rate Cuts
Last week, Federal Reserve Chair Jerome Powell reiterated that the Fed is not prepared to cut rates until they are convinced that inflation is trending towards the 2% target. A Reuters poll revealed that investors expect the Fed to be the first central bank to cut rates in June. Meanwhile, 52 of 108 economists anticipate the Fed to cut rates by economy-shrinking-and-alters-interest-rate-projections/” title=”Q4 Economic Data Shows New Zealand’s Economy Shrinking and Alters Interest Rate Projections”>75 basis points in 2024, with 26 predicting a 100 basis points cut.
Mexican Peso Forecast and Inflation
A Reuters poll predicts the Mexican Peso to depreciate 7% to 18.24 in 12 months from 16.96 on Monday, according to the median of 20 FX strategists polled between March 1-4. The forecast ranged from 15.50 to 19.00. A Reuters poll also shows that 15 analysts estimate that inflation will slow down in February, supporting bets that the Bank of Mexico (Banxico) could cut rates as early as the March 21 meeting.
Technical Analysis: Mexican Peso and USD/MXN
The USD/MXN is showing a downward bias, although it seems to have bottomed out near 17.80. The Relative Strength Index (RSI) has increased slightly, but downside risks persist. If sellers push the prices below the current year-to-date (YTD) low of 16.76, it could pave the way for challenging last year’s low of 16.62.
Conversely, if buyers regain the 17.00 figure, it could lead to testing the 50-day Simple Moving Average (SMA) at 17.05, followed by the 200-day SMA at 17.23 and the 100-SMA at 17.24.
Understanding the Dynamics of the Mexican Peso
The Mexican Peso (MXN), a leading currency within Latin America, distinguishes itself by its high trading volume among its regional peers. Its valuation is deeply influenced by several key factors: the overall performance of Mexico’s economy, the strategic policies of the nation’s central bank (Banxico), the volume of international investments pouring into Mexico, and the substantial remittances sent home by Mexicans living overseas, especially from the United States.
Banxico’s paramount goal is the preservation of low and stable inflation rates, aiming to hover around a 3% target, positioned within a tolerance range of 2% to 4%. This is pursued through the careful modulation of interest rates, a critical lever for economic equilibrium.
The impact of macroeconomic announcements on the valuation of the Mexican Peso is significant, as these data points offer insights into the economic health of the country. Indicators of a robust Mexican economy include vigorous economic growth, minimal unemployment, and strong consumer and business confidence, all of which are conducive to the strength of the MXN.
Given its status as an emerging-market currency, the MXN typically gains momentum in “risk-on” scenarios when the investment landscape is perceived as less risky, prompting investors to engage with higher-risk assets.
