Mexican Peso appreciates as trade tennsiones eases ahead of US CPI
Most recent article: Mexican Peso strengthens as US CPI cools
- Mexican Peso flatlines as trade war escalation limits risk appetite.
- USD/MXN trades near 20.33 as US-Canada trade tensions overshadow market sentiment.
- Peso struggles despite broad USD weakness with the DXY hitting YTD lows at 103.30.
- Investors await Mexico’s GDP data and US CPI this week amid lingering tariff uncertainty.
The Mexican Peso (MXN) appreciates against the US Dollar (USD) as the latter refreshes year-to-date (YTD) lows against a basket of six currencies, revealed the US Dollar Index (DXY). The de-escalation of the trade war between the United States (US) and Canada, improved market mood, and boosted the Peso. The USD/MXN trades at 20.25, down 0.50%.
Earlier, US President Donald Trump escalated tensions with Canada by imposing additional 25% tariffs on aluminum and steel imports as retaliation for applying duties on electricity imported from Ontario to New York, Michigan and Minnesota.
The Mexican Peso was unfazed by the news, yet it remains trading below the 100-day Simple Moving Average (SMA) at 20.34.
Mexico’s economic docket remained empty with traders bracing for the release of quarterly and annually Aggregate Demand figures for Q4 2024. In the US, job vacancies rose, according to the US Bureau of Labor Statistics (BLS), amid uncertainty on tariffs and aggressive government spending cuts.
Even though the data was supportive of the US Dollar, the DXY prolonged its fall to year-to-date (YTD) lows of 103.30, down 0.55%.
This week, US inflation figures will shed some light on what the Federal Reserve (Fed) might do regarding monetary policy. As of writing, money market futures traders are pricing in 83.5 basis points of easing toward the year’s end.
Daily digest market movers: Mexican Peso hovers around 20.30
- Despite the recent uptick on headline and core prices, Mexico’s Consumer Confidence data and the ongoing disinflation process in Mexico suggest Banco de Mexico (Banxico) could cut interest rates at the upcoming March 27 meeting.
- The US Job Openings and Labor Turnover Survey (JOLTS) report revealed that vacancies increased in January from 7.508 million to 7.740 million, exceeding forecasts of 7.63 million.
- A Reuters poll showed that 70 out of 74 economists say the risk of recession has risen in the US, Canada and Mexico.
- In the boiler room, trade disputes between the US and Mexico remain front and center. If the countries could agree, it would pave the way for a recovery of the Mexican currency. Otherwise, further USD/MXN upside is seen as US tariffs could trigger a recession in Mexico.
USD/MXN technical outlook: Mexican Peso weakens as USD/MXN climbs past 20.30
The USD/MXN consolidated within the 20.20–20.50 range during the last three days with neither buyers nor sellers able to break the range. Momentum hints that further downside is seen in the near term, according to the Relative Strength Index (RSI).
With that said, the USD/MXN’s first support would be 20.20, followed by the 20.00 figure. If surpassed, the next stop would be the 200-day SMA at 19.59. Conversely, if USD/MXN hurdles toward 20.50, the next resistance would be the March 4 swing high at 20.99 and the YTD peak of 21.28.
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.
Author
Christian Borjon Valencia
FXStreet
Christian Borjon began his career as a retail trader in 2010, mainly focused on technical analysis and strategies around it. He started as a swing trader, as he used to work in another industry unrelated to the financial markets.
