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Mexican Peso clings to gains on risk appetite improvement ahead of Fed’s decision – Crypto News
- Mexican Peso hovers around 18.08, down 0.09% on risk-on mood.
- Hurricane Otis’s impact on the southern state of Guerrero could strain Mexico’s finances.
- USD/MXN traders await the US Federal Reserve monetary policy meeting, expecting unchanged rates.
Mexican Peso (MXN) prints minuscule gains against the US Dollar (USD) in the mid-North American session, as Oil prices retreated last Friday’s gains, with the USD/MXN hovering around the 20-day Simple Moving Average (SMA), eyeing a recovery past the 18.10 mark. At the time of writing, the pair is still losing 0.12%, trading at around 18.08.
Mexico’s currency continues to remain underpinned by equity indices in the United States (US), as Wall Street shrugs off Israel’s offensive on the Gaza Strip, with fears of a spillover contained.
Hurricane Otis impacted Acapulco, in the southern state of Guerrero, over the weekend, likely weighing on the country’s finances, as the FONDEN – a trust created by previous Mexican government administrations to respond to natural disasters – disappeared since President Andres Manuel Lopez Obrador’s administration began.
Initial estimates on damages were calculated at around $828 million dollars by Enki Research, but the economic impact, according to Chuck Watson, a disaster modeler with the former, could likely total $10 billion to $15 billion, as revealed by Bloomberg.
In the meantime, USD/MXN traders are eyeing the release of a busy US economic schedule, highlighted by the US Federal Reserve (Fed) monetary policy meeting on November 1, which is expected to hold rates unchanged. Odds for a 25 bps increase to the Federal Funds Rate (FFR) are at 1.4%, as shown by the CME FedWatch Tool.
Daily digest movers: Mexican Peso at the mercy of the Fed, and market sentiment
- First estimates of Hurricane Otis damages stand at around $10 to $15 billion dollars, according to Enki Research, a firm specializing in natural disasters.
- Mexican authorities reported that around 270,000 houses in Acapulco were affected or destroyed, while 80% of hotels were severely damaged.
- The October US Dallas Fed Manufacturing Index plunged to -19.2, worse than September 18.1.
- Elevated US Treasury bond yields, particularly the 10-year benchmark note, rose up five basis points to 4.89%, capping the USD/MXN drop despite overall US Dollar weakness.
- The US Dollar Index, which tracks the performance of the Greenback against six currencies, slides 0.40%, down at 106.15.
- Mexico’s economic docket would feature the release of the Fiscal Balance, Gross Domestic Product for Q3, S&P Global Manufacturing PMIs, Foreign Exchange Reserves, and Gross Fixed Investment.
- The US agenda will feature the Fed’s decision, Fed Powell’s press conference, employment data, and S&P Global and ISM Manufacturing PMIs.
- 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 buyers target the 200-day Simple Moving Average
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 18.10 at risk of being decisively broken to the downside. A daily close below the latter could pave the way for a test of the 200-day SMA at 17.72. A breach of the latter and the next support would be the 50-day SMA at 17.55. 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.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
