Most recent article: Mexican Peso recovers slightly amid US holiday, traders eye Banxico’s minutes
- Mexican Peso stays firm, as the USD/MXN remains volatile during the North American session.
- US inflation expectations peaked at around 4.5%, sparking a jump in US Treasury bond yields.
- Mexico's retail sales growth slowed to 2.3% in September, missing forecasts with consumers feeling higher interest rates set by Banxico.
- Mexico’s key economic releases ahead include November inflation data and Q3 GDP.
Mexican Peso (MXN) remains volatile, seesawing between gains and losses against the US Dollar (USD) and trades at around the 17.18/17.24 area after inflation expectations by American households were upward revised, triggering a jump in Treasury bond yields in the United States (US). Hence, the USD/MXN pair edges lower and trades below the 17.20 area after hitting a daily high of 17.24.
The University of Michigan Consumer Sentiment poll revealed that inflation expectations, rose for one year to 4.5% from 4.4% in the previous report, while it stood at 3.2% for a five-year period. That sponsored the USD/MXN with the current leg-up after the pair hovered around the 17.18 area.
Mexico’s Retail Sales grew by 2.3% YoY in September, slowing down from 3.2% in August and missing estimates of 3.6% expansion. The data begins to evidence the impact of higher interest rates set by the Bank of Mexico (Banxico), currently at 11.25%. Meanwhile, a preliminary data release from the National Statistics Agency (INEGI) showed that economic activity contracted in October, for the first time since June 2022, compared to September.
Ahead in the docket on Thursday, the November mid-month inflation rates are expected to climb in the headline, contrarily to the core, which is foreseen to decline somewhat. On Friday, Mexico will reveal the Gross Domestic Product (GDP) for Q3, which would offer USD/MXN traders fresh impetus ahead of the end of the week.
Daily digest movers: Mexican Peso could weaken as traders await Mexico’s Q3 GDP and economic activity release
- INEGI estimates the economy shrank 0.1% MoM in October, though annually based, it expanded by 2.9%, according to the agency Timely Indicator of Economic Activity (IOAE).
- A Citibanamex poll suggests that 25 of 32 economists polled expect Banxico's first rate cut in the first half of 2024.
- The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
- Headline annual inflation is expected at 4% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024
- The latest US Federal Reserve (Fed) minutes showed the Fed would proceed “cautiously” in setting monetary policy and left the door open to additional tightening if warranted by data.
- US Initial Jobless Claims missed estimates, while Durable Goods Orders plunged sharply, suggesting the economy continues to decelerate.
- Data published last week showed prices paid by consumers and producers in the US dipped, increasing investors' speculations that the Fed’s tightening cycle has ended.
- The swap market suggests traders expect 100 basis points of rate cuts by the Fed in 2024.
- 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%.
- 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 remains bullish if USD/MXN stays below 17.34
The USD/MXN bearish bias remains intact, and despite forming a ‘tweezers bottom’ two candlestick chart pattern, buyers' failure to lift prices toward the 100-day Simple Moving Average (SMA) at 17.34 opened the door to a pullback. However, if USD/MXN reclaims the latter, further upside is seen, with the next resistance at the 20-day SMA at 17.55, ahead of the 200-day SMA at 17.61.
Nevertheless, the most likely scenario would be the pair dropping toward the November 21 low of 17.06, ahead of sliding toward the 17.00 figure. Once sellers regain that level, the USD/MXN bearish bias would be cemented, and expect another test of the year-to-date (YTD) low of 16.62.
GDP FAQs
What is GDP and how is it recorded?
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
How does GDP influence currencies?
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
How does higher GDP impact the price of Gold?
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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