Mexican Peso ticks down as US Durable Goods Orders jump and Consumer Confidence steadies.
Banxico’s dovish stance remains with Governor Rodriguez hinting at possible future rate cuts amidst inflation concerns.
USD/MXN tests key support levels with potential for further movement on Banxico actions and US data insights.
The Mexican Peso (MXN) pares earlier losses against the US Dollar on Tuesday as the North American session begins. The Greenback continues to recover amid a slightly busy economic docket in the United States (US). An improvement in US Durable Goods Orders increasing the most since 2022, prompted traders to buy the US Dollar, while consumer confidence remained steady. The USD/MXN trades at 16.67, almost flat.
Mexico’s economic schedule is scarce, but it will gather pace on Wednesday. According to the consensus, the Balance of Trade is expected to show a narrower deficit in February, from $-4.31 billion to $-0.2 billion. The Unemployment Rate is foreseen dipping from 2.9% to 2.8% for the same period.
Banxico Governor Victoria Rodriguez Ceja remained dovish via an interview with El Financiero. Rodriguez commented that the battle against inflation hasn’t been concluded, though adding that in upcoming meetings, they would discuss further rate cuts to the main reference rate.
Daily digest market movers: Mexican Peso trims losses as USD/MXN is unchanged
Banxico Governor Victoria Rodriguez Ceja said, “When macroeconomic conditions and the inflationary outlook allow us to make additional adjustments to the reference rate to the one we already have, I consider that they would be gradual.”
Mexico’s economy contracted for the fourth time in January. The Indicator of General Economic Activity plunged -0.6% MoM, below estimates of a 0.3% expansion, and slowed compared to December, missing estimates of 2.6% to print at 2%. Inflation in Mexico exceeded estimates of 4.45%, increasing by 4.48%, while core figures jumped above the consensus of 4.62% YoY to 4.69%.
The outlook in Mexico suggests the economy is stagnating. A weak retail sales report, private spending falling sharply, and a contraction in economic activity justified Banxico’s rate cut. Nevertheless, they face stubbornly stickier inflation, keeping policymakers on their toes.
Federal Reserve policymakers had been crossing the wires. Atlanta Fed President Raphael Bostic remains hawkish by supporting just one rate cut in 2024. Fed Governor Lisa Cook echoed Bostic’s comments and added that cutting too soon increases the risk of inflation becoming entrenched.
Chicago Fed President Austan Goolsbee remains dovish, expecting three cuts, though he said he needs more evidence of inflation “coming down.”
US Durable Goods Orders rose for the first time in three months from -0.3% MoM to 0.6% in February, an indication that companies are slightly optimistic about the economy.
The Conference Board (CB) showed that Consumer Confidence in March deteriorated from 104.8 to 104, below estimates.
Technical analysis: Mexican Peso is subdued as USD/MXN oscillates around 16.60/70
The USD/MXN downtrend remains intact, though it seems the exotic pair is consolidating within the 16.60/16.70 area. If sellers push prices below last year’s 16.62, that could exacerbate a drop to challenge October’s 2015 low of 16.32. Further support lies in the psychological 16.00 figure.
For a bullish scenario, traders must reclaim the last week’s high of 16.94, ahead of the 17.00 figure. Up next would be the 50-day Simple Moving Average (SMA) at 17.00, the 100-day SMA at 17.09, and the 200-day SMA at 17.20.
USD/MXN Price Action – Daily Chart
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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