Mexican Peso finish Thursday’s session positively and threatens key level

Most recent article: Mexican Peso slumps as US Dollar stages comeback amid US inflation concerns

Mexican Peso appreciates against US Dollar amid weak US Retail Sales affected by high interest rates.
Bank of Mexico reports a modest 2.2% growth in Foreign Direct Investment for the year.
US economic outlook positive, says White House Adviser, ahead of Fed Governor Waller's speech.

Mexican Peso (MXN) climbed against the US Dollar (USD) on Thursday following a softer retail sales report from the United States (US), an indication that higher interest rates impact consumer spending. Regarding the labor market, it remains solid after the US Bureau of Labor Statistics (BLS) announced that unemployment claims were below estimates. The USD/MXN trades at 17.04, down by 0.18%.

Mexico’s economic docket remains scarce, though the Bank of Mexico revealed that Foreign Direct Investment (FDI) registered an expansion of 2.2% by the end of last year. Nevertheless, the data suggests the growth rate slowed, failing to reach the expectations of international organizations and economists.

Across the border, White House Economic Adviser Lael Brainard said the fundamentals of the US economy seem “quite good,” and consumer purchasing power remains strong. Later, her former colleague, Fed Governor Christopher Waller, will cross the wires.

Daily digest market movers: Mexican Peso stays firm as Foreign Direct Investment grows

Mexico’s Foreign Direct Investment came at $36 billion dollars, according to the Ministry of Economy. Although last year’s data marked a historical level, it missed estimates of $43.9 billion by the United Nations Conference on Trade and Development.
A survey of the Bank of Mexico (Banxico) announced that 25 polled economists expected a higher figure of $38 billion.
The US Commerce Department announced that Retail Sales experienced a greater decline than the anticipated -0.1% contraction, recording a -0.8% MoM drop attributed to winter storms. Additionally, the sales data for December was revised downward from an initial estimate of 0.6% to 0.4% MoM.
The US Bureau of Labor Statistics (BLS) reported that for the week ending February 10, unemployment claims fell to 212K, coming in below both the prior figure and the expected 220K.
Market players are expecting the first rate cut by the Federal Reserve at the June monetary policy meeting as they trimmed odds for March and May.
US 10-year Treasury note yield is almost flat at 4.253%, while the US Dollar Index (DXY) dropped toward 104.41, down -0.28%.
At its latest monetary policy decision, Banxico revised its inflation expectations to the upside for the period from Q1 to Q3 of 2024, expecting inflation to converge toward 3.5% in Q4, based on the latest monetary policy statement.

Technical analysis: Mexican Peso tests key level as USD/MXN hovers around 17.10

The USD/MXN consolidated in the 17.05-17.10 area during the last couple of days, holding near the 50-day Simple Moving Average (SMA) at 17.10. If buyers decisively break that level, the first resistance would be the psychological 17.20 area. A breach of the latter and the exotic pair could threaten the 200-day SMA at 17.29, before aiming toward the 100-day SMA at 17.39.

Conversely, if sellers step in and push prices below the 17.05 area, that would pave the way to test the 17.00 figure. Further downside is seen at last year’s low of 16.62.

USD/MXN Price Action – Daily Chart

Mexican Peso FAQs

What key factors drive the Mexican Peso?

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.

How do decisions of the Banxico impact the Mexican Peso?

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.

How does economic data influence the value of the Mexican Peso?

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.

How does broader risk sentiment impact the Mexican Peso?

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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