Mexican Peso declines as Donald Trump edges ahead in polls

The Mexican Peso is losing ground as Donald Trump edges past Kamala Harris in the polls.
Trump has vowed to slap massive import tariffs on Mexican goods, especially cars, so if he wins, it will negatively impact MXN.
USD/MXN starts rallying back up within its rising channel after a brief pullback.

The Mexican Peso (MXN) is weakening in its key pairs on Monday as the odds shift marginally in favor of former President Donald Trump winning the United States (US) presidential election in November. This comes after a period in which Trump trailed behind US Vice President and Democratic candidate Kamala Harris in the polls. Trump has said he will tear up the US’s free trade agreement with Mexico and slap up to 300% tariffs on Mexican cars arriving in the States. Such a move would hit the Mexican economy and reduce demand for its currency.

The latest national opinion poll by TIPP Insights on October 17-19 shows Donald Trump in the lead with 49% of the vote against Harris’s 47%, according to election website FiveThirtyEight. Betting website OddsChecker, meanwhile, has about equal chances – 33/50 or 60.02% for Trump to win and 4/6 or 60.00% for a Harris victory.

Trump supporter and CEO of Tesla Elon Musk’s pledge to offer voters in swing states the opportunity to be entered into a prize draw for a $1 million jackpot if they vote for Trump has also been seen as a major boost to the former president’s campaign, according to Bloomberg News.

Mexican Peso capped by defensive stance

The Mexican Peso might also be suffering as a result of the increasingly “defensive” stance of global investors towards emerging market (EM) assets, according to an article in El Financiero. This is partly because of increasing concerns the Federal Reserve (Fed) may have acted too hastily in lowering US interest rates by a double-the-usual 50 basis points (bps) (0.50%) at its meeting in September.

Buoyant US data suggests conditions may not have warranted such a large rate cut. Although a strong US economy is positive for Mexico because the US is such an important trading neighbor, elevated US interest rates also reduce the attractiveness of EM – chiefly Brazilian and Mexican – assets, according to The Wall Street Journal (WSJ). A retrenchment to a tighter stance would hurt demand for Mexican assets from global investors.

Disappointment at the level of Chinese stimulus measures might also be a factor in increasing investor defensiveness over EM holdings, which in turn could be weighing on the Mexican Peso. That said, the People’s Bank of China (PBoC) decided to cut its one- and five-year prime rates on Monday in a further measure to ease credit conditions.

Technical Analysis: USD/MXN starts rising again

USD/MXN restarts its rally within a rising channel after a brief pullback that ended up petering out pretty rapidly.

On Friday, the pair formed a bullish Hammer Japanese candlestick pattern, which neutralized the bearish Shooting Star candlestick formed the day before. This suggests there probably now will not be a pullback unfolding lower.

The pair is again on the rise at the start of the week and appears to be resuming its uptrend.

USD/MXN Daily Chart

The break above 19.83 (October 1 high) confirmed a continuation up to the next target in the vicinity of the September 10 high at 20.13, which remains live.

The Moving Average Convergence Divergence (MACD) momentum indicator is rising quite strongly after bottoming out at the zero line, supporting a mildly bullish outlook overall.

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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