Mexican Peso retreats after strong rally following US data – Crypto News – Crypto News
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Mexican Peso retreats after strong rally following US data – Crypto News

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  • The Mexican Peso retreats on Thursday after rallying strongly against the US Dollar following key US data. 
  • US CPI and Retail Sales missed analysts expectations and showed a slow down from previous readings. 
  • The data puts back on the table the possibility of an early interest rate cut from the Fed, weighing on USD. 

The Mexican Peso (MXN) edges lower on Thursday as traders press pause after the Peso’s strong rally on the previous day. Lower-than-expected Consumer Price Index (CPI) and Retail Sales data for April in the US revealed a cooling down of inflation and economic activity that recalibrated interest-rate expectations. 

The data suggests the Federal Reserve (Fed) may be more inclined to lower borrowing costs – a negative for the US Dollar (USD) but overall positive for the Mexican Peso. 

At the time of writing USD/MXN is trading at four-week lows of 16.71, EUR/MXN is trading at 18.18 and GBP/MXN at 21.19. 

Mexican Peso reverses after US data

The Mexican Peso rebounded against the USD in particular – but other major currencies too – after US CPI data undershot expectations, thereby increasing the chances the Fed might lower interest rates sooner than previously expected. Lower interest rates are negative for the USD as they reduce foreign capital inflows.

US headline CPI dropped by 0.3% on a month-on-month (MoM) basis in April, which was below the 0.4% forecast by experts and the 0.4% registered in March, according to data from the US Bureau of Labor Statistics. The year-over-year (YoY) reading came out at 3.4% as estimated, though below the 3.5% of March. 

The data for CPI ex Food and Energy, meanwhile, came out in line with expectations of 0.3% MoM, but this too was below the 0.4% of March. YoY, the gauge fell to 3.6% as forecast, from 3.8% previously. 

US Retail Sales showed flat consumer spending, with a 0.0% reading in April, which was well below estimates of 0.4% and the downwardly revised 0.6% of the previous month, according to data from the US Census Bureau. 

USD/MXN rose almost a percentage point after the news as investors recalibrated their expectations of the future course of US interest rates. 

Technical Analysis: USD/MXN resumes downtrend

USD/MXN – the value of one US Dollar in Mexican Pesos –  “air-kissed goodbye” the key resistance level at roughly 16.86, which it had returned to after its range breakout, and descended on Wednesday, clocking substantial losses in the progress. 

USD/MXN 4-hour Chart 

The pair has now resumed its short-term downtrend towards the conservative target for the breakout at 16.54, the 0.681 Fibonacci ratio of the height of the range extrapolated lower.  Further bearishness could even reach 16.34, the full height of the range extrapolated lower. 

Given the medium and long-term trends are bearish, the odds further favor more downside for the pair in line with those trends. 

It would take a recovery and decisive break back inside the range (above 16.86), to reverse the downtrending bias.

A decisive break would be one accompanied by a longer-than-average green candlestick that closed near its high or three green candlesticks in a row. 

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

 

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