Mexican Peso climbs against the US Dollar as speculations for US economy soft landing grow

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  • Mexican Peso stages a comeback as the USD/MXN breaks key support at the 100-day SMA, eyeing 17.00.
  • Mexico’s Consumer Confidence has improved the most since 2019.
  • US ADP Employment Change was softer than expected, weighed on the US Dollar.

Mexican Peso (MXN) gains traction against the US Dollar (USD) as the soft-landing narrative takes place in the financial markets. Expectations for rate cuts by major central banks next year sent global bond yields into a tailspin, while the Greenback (USD) remains firm. Nevertheless, the USD/MXN is trading at 17.25 below its 100-day Simple Moving Average (SMA), posting daily losses of 0.74%.

Mexico’s economic docket revealed Consumer Confidence data, which failed to gain traders’ attention, and remained focused on the release of further economic data from the United States (US) ahead of Friday’s November Nonfarm Payrolls (NFP) report. In the meantime, expectations of rate cuts by the Federal Reserve (Fed) remain above 100 basis points for the next year, a reason behind the USD/MXN’s drop.

Daily digest movers: Mexican Peso continues to strengthen amid growing confidence in Mexican households

  • Consumer confidence in Mexico improved to 47.3, seasonally adjusted, exceeding October’s 46.2 reading, its highest level since February 2019.
  • Mexico's economic calendar will feature the release of November’s Consumer Price Index (CPI), on Thursday, expected to show a slight climb compared to October’s readings.
  • Across the border, Automatic Data Processing (ADP) and the Stanford Digital Lab revealed the US ADP Employment Change report, which shows companies hiring in the US and is seen as a prelude to Nonfarm Payrolls. November’s ADP Employment report showed that 103,000 jobs were added to the economy, below forecasts of 130,000, and trailed downward revised data from October at 106,000.
  • Further data showed the US Trade deficit widened more than projected in October due to a decline in exports. The trade deficit was expected at $64.2 billion, and it came to $64.3 billion, spurred by exports of goods and services dropping 1%, while imports rose by 0.2%.
  • Meanwhile, October’s JOLTs report showed the labor market is cooling. Jobs data, alongside a decline in the US Federal Reserve’s (Fed) preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, have been two of the reasons why market participants are expecting more than 100 basis points of rate cuts by the Fed.

Technical Analysis: Mexican Peso regains control as the USD/MXN extends its losses under the 100-day SMA

The USD/MXN is reversing its previous course, and dropped below the 100-day SMA at 17.38, extending its losses below the 17.30 figure. A daily close below that level would cement its bearish bias. In that outcome, the pair's first support would be the current week’s low 17.16, followed by strong support found at 17.05. Once taken out, the 17.00 figure would be up for grabs.

On the other hand, if USD/MXN climbs past the 100-day SMA, that would pave the way to test at 17.50 and the 200-day SMA at 17.55. A breach of those two levels could open the door to testing he 50-day SMA at 17.68.

Banxico FAQs

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

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