Mexican Peso ticks down as US Durable Goods Orders jump and Consumer Confidence steadies.
Banxico’s dovish stance remains with Governor Rodriguez hinting at possible future rate cuts amidst inflation concerns.
USD/MXN tests key support levels with potential for further movement on Banxico actions and US data insights.
The Mexican Peso (MXN) pares earlier losses against the US Dollar on Tuesday as the North American session begins. The Greenback continues to recover amid a slightly busy economic docket in the United States (US). An improvement in US Durable Goods Orders increasing the most since 2022, prompted traders to buy the US Dollar, while consumer confidence remained steady. The USD/MXN trades at src6.67, almost flat.
Mexico’s economic schedule is scarce, but it will gather pace on Wednesday. According to the consensus, the Balance of Trade is expected to show a narrower deficit in February, from $-4.3src billion to $-0.2 billion. The Unemployment Rate is foreseen dipping from 2.9% to 2.8% for the same period.
Banxico Governor Victoria Rodriguez Ceja remained dovish via an interview with El Financiero. Rodriguez commented that the battle against inflation hasn’t been concluded, though adding that in upcoming meetings, they would discuss further rate cuts to the main reference rate.
Daily digest market movers: Mexican Peso trims losses as USD/MXN is unchanged
Banxico Governor Victoria Rodriguez Ceja said, “When macroeconomic conditions and the inflationary outlook allow us to make additional adjustments to the reference rate to the one we already have, I consider that they would be gradual.”
Mexico’s economy contracted for the fourth time in January. The Indicator of General Economic Activity plunged -0.6% MoM, below estimates of a 0.3% expansion, and slowed compared to December, missing estimates of 2.6% to print at 2%. Inflation in Mexico exceeded estimates of 4.45%, increasing by 4.48%, while core figures jumped above the consensus of 4.62% YoY to 4.69%.
The outlook in Mexico suggests the economy is stagnating. A weak retail sales report, private spending falling sharply, and a contraction in economic activity justified Banxico’s rate cut. Nevertheless, they face stubbornly stickier inflation, keeping policymakers on their toes.
Federal Reserve policymakers had been crossing the wires. Atlanta Fed President Raphael Bostic remains hawkish by supporting just one rate cut in 2024. Fed Governor Lisa Cook echoed Bostic’s comments and added that cutting too soon increases the risk of inflation becoming entrenched.
Chicago Fed President Austan Goolsbee remains dovish, expecting three cuts, though he said he needs more evidence of inflation “coming down.”
US Durable Goods Orders rose for the first time in three months from -0.3% MoM to 0.6% in February, an indication that companies are slightly optimistic about the economy.
The Conference Board (CB) showed that Consumer Confidence in March deteriorated from src04.8 to src04, below estimates.
Technical analysis: Mexican Peso is subdued as USD/MXN oscillates around src6.60/70
The USD/MXN downtrend remains intact, though it seems the exotic pair is consolidating within the src6.60/src6.70 area. If sellers push prices below last year’s src6.62, that could exacerbate a drop to challenge October’s 20src5 low of src6.32. Further support lies in the psychological src6.00 figure.
For a bullish scenario, traders must reclaim the last week’s high of src6.94, ahead of the src7.00 figure. Up next would be the 50-day Simple Moving Average (SMA) at src7.00, the src00-day SMA at src7.09, and the 200-day SMA at src7.20.
USD/MXN Price Action – Daily Chart
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-src9 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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