- The Mexican Peso concluded the week with a decline in value relative to the US Dollar.
- The forthcoming week’s economic agenda will be marked by a significant focus on Mexico’s inflation rate.
- There is a possibility that the USD/MXN currency pair may exhibit a lateral movement after the decision of Banxico to maintain elevated interest rates to mitigate inflationary pressures.
The Mexican Peso (MXN) maintained its position relative to the US Dollar (USD) on Friday, following remarks made by a Federal Reserve (Fed) official that triggered a risk-averse sentiment. However, the emerging market currency remained resilient. However, a weekly decline of over 1% was observed in the USD/MXN exchange rate, as trading concluded at 17.42, reflecting a modest increase of 1.17%.
Before delving into the remarks made by John C. Williams, President of the Federal Reserve Bank of New York, it is pertinent to note that the economic agenda in Mexico encompasses critical indicators such as Business and Consumer Confidence, S&P Global Manufacturing PMI, and the Consumer Price Index (CPI), all of which pertain to September.
In addition to the point above, it is noteworthy that the President of the Federal Reserve Bank of New York, Mr. Williams, has made a statement indicating that the United States central bank has concluded its rate hikes. However, he emphasized the importance of maintaining these rates at elevated levels for an extended duration.
The performance of US equities was impacted by prevailing market conditions, resulting in a mixed outcome on Wall Street. Notably, the Nasdaq 100 stood out as an exception, exhibiting a respectable increase of 0.14%.
Compounding the prevailing negative sentiment was the announcement of an impending government shutdown in the United States. This development was met with widespread dissatisfaction as the US House of Representatives, by a margin of 232-198, voted against a bill that sought to allocate funds for the government’s operations over 30 days.
This outcome contrasted with the approval the tab above in the US Senate received. It should be noted that the timely dissemination of numerous economic data releases in the United States may encounter potential delays if a mutually satisfactory agreement is not reached between the Republican and Democratic factions.
Mexican Peso Will Remain Under Duress
- The Bank of Mexico, also known as Banxico, has decided to maintain interest rates at 11.25%. Additionally, the central bank has revised its inflation projections for the year 2024. The new estimates indicate an inflation rate of 3.87%, which exceeds the central bank’s target range of 3% (with a tolerance of plus or minus 1%).
- The Government Board of Banxico has underscored the economic resilience of Mexico and the robustness of its labor market as the primary factors contributing to the maintenance of inflation at the present level of interest rates.
- BBVA has revised its economic growth forecast for Mexico, projecting an increase in the Gross Domestic Product (GDP) to 3.2% in 2023, up from the previous estimate of 2.4%. Furthermore, the bank anticipates a GDP growth rate of 2.6% in 2024, a significant improvement from the prior projection of 1.8%.
- The August deficit in Mexico amounted to 38,944.3 million pesos.
- The unemployment rate in Mexico experienced a marginal decline, moving from 3.1% in July to 3.0% on a month-on-month basis in August, as the National Statistics Agency (INEGI) reported.
- According to the National Institute of Statistics and Geography (INEGI), the inflation report for the first half of September in Mexico recorded a rate of 4.44%, indicating a decrease from the previous month’s figure of 4.64%.
- The Mexican Peso experiences a depreciation due to prevailing risk aversion, characteristic of emerging market currencies. Consequently, reports indicating a potential shutdown of the United States Government prompted a surge in demand for safe-haven assets, resulting in a depreciation of the Mexican Peso.
- The depreciation of the Mexican currency is influenced by the downward trend in oil prices, given the significant reliance of its economy on the exportation of crude oil.
- Moody’s rating agency has issued a cautionary statement regarding the fiscal strategy of the Mexican government in 2024. It emphasizes establishing credibility following the June elections to determine the country’s stable outlook.
- In July, Moody’s downgraded Mexico’s rating to “Baa2” with a “stable” outlook, citing concerns regarding fiscal pressures that the upcoming government may face due to the 2024 economic budget.
- The USD/MXN currency pair experienced further declines as the US Core Personal Consumption Expenditures (PCE) index decreased from 4% to 3.9% year-over-year in August.
- The decline in the USD/MXN pair was interrupted by a resurgence of strength in the US Dollar Index (DXY), leading to a recovery above the 106.00 level around 20:00 GMT.
The Technical Analysis of the Situation
The Mexican Peso (MXN) experienced a period of depreciation, reaching a value of 17.81 against the US Dollar, near the 200-day Simple Moving Average (SMA) of 17.84. The USD/MXN currency pair exhibits an intensified downward trajectory after closing below the 17.60 level.
Market participants with a selling inclination are now directing their attention toward a potential breach of the 20-day Simple Moving Average (SMA) at 17.32. If the level above is relinquished, the USD/MXN currency pair would examine the 100-day Simple Moving Average (SMA) positioned at 17.18, subsequently succeeded by the 50-day SMA situated at 17.10.
If the exotic couple maintains a position above the September low of 16.99, there is a possibility for the resumption of the upward movement observed over one month.