Mexican Peso advances despite Mexico’s trade deficit, US Core PCE in line with forecasts – Crypto News – Crypto News
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Mexican Peso advances despite Mexico’s trade deficit, US Core PCE in line with forecasts – Crypto News

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  • Mexican Peso extends its gains, printed a 7-day low below 18.00, on risk-on impulse.
  • Mexico’s trade deficit widened to $-1.481 billion in September but didn’t impact Peso’s rally.
  • US inflation data came out in line with estimates and the market is skeptical the Fed will raise rates past the current range.

Mexican Peso (MXN) clings to its earlier gains against the US Dollar (USD) during the North American session amid some risk appetite improvement and high Oil prices underpinning the emerging market currency. That despite Mexico’s worse-than-expected data, while inflation in the United States (US) met estimates, as revealed by the US Bureau of Economic Analysis (BEA). Even though it justifies another US Federal Reserve (Fed) hike, market participants are pricing in an end to the Fed’s tightening cycle. The USD/MXN is trading at 18.05, down 0.49%.

Mexico’s Balance of Trade in September was $-1.481 billion, worse than the consensus of $-0.700 billion, and August’s $-1.377 billion, for a seasonally adjusted deficit of $-822 million. The data did not trigger a reaction in the USD/MXN, which plunged after the Core Personal Consumption Expenditures (PCE) report. The Fed’s preferred gauge for inflation showed that prices climbed in line with estimates in September on a monthly and annual basis and sponsored the USD/MXN next leg down from around 18.15 towards its daily low at 17.99.

Market participants remain skeptical that the Fed will raise rates past the current 5.25% – 5.50% range, as demonstrated by the CME FedWatch Tool.

Daily Digest Market Movers: Mexican Peso revives, USD/MXN drops below 18.10

  • Mexico’s September Trade balance printed a deficit of $-1.418 billion, worse than August’s and estimates of $-1.377 billion and $-0.71 billion, respectively.
  • US PCE Index rose by 3.4% YoY, unchanged from August and aligned with estimates.
  • US Core PCE annually based, cooled from August’s 3.8% to 3.7% in September, but came out as expected.
  • US Q3 GDP grows at an annualized rate of 4.9%, higher than the 4.2% consensus.
  • On October 24, Mexico’s National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
  • Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
  • Earlier this week, S&P Global Manufacturing PMIs evidenced expansion in US manufacturing and service sectors during October.
  • The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso climbs as USD/MXN slides below the 20-day SMA at around 18.08

The USD/MXN uptrend remains intact despite Friday’s dip below the 18.00 figure, which puts the 20-day Simple Moving Average (SMA) at 18.08 at risk of being decisively broken to the downside. A daily close below the latter could pave the way for a fall below 18.00 and a test of the 200-day SMA at 17.72. On the flip side, if the exotic pair remains above the 20-day SMA, the next resistance will emerge at the October 26 high at 18.42 before challenging last week’s high at 18.46, ahead of challenging the 18.50 figure.

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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