Mexican Peso slides on geopolitics unrest due to Israel-Gaza tussle, Mexico’s inflation dips – Crypto News – Crypto News
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Mexican Peso slides on geopolitics unrest due to Israel-Gaza tussle, Mexico’s inflation dips – Crypto News

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  • Mexican Peso approaches last week’s high of 18.48; USD/MXN bulls target 18.50.
  • Mexico’s inflation slows as core CPI rate drops below 6%, headline inflation near Banxico’s target.
  • USD/MXN trading within the 18.20-18.40 range amid a US holiday.

Mexican Peso (MXN) loses territory against the US Dollar (USD) as risk aversion takes its toll after the resurgence of a Middle East conflict that involves Israel and Hamas. Therefore, the safe-haven status of the Greenback (USD) spurred demand, though high Oil prices have capped the USD/MXN pair rise as the fight intensifies, exchanging hands at around 18.30 for a gain of 0.86%.

Geopolitics is the main driver of Monday’s session, which also features a holiday in the United States (US) in observance of Columbus Day. Mexico’s inflation continues its downtrend, as reported by the National Statistics Agency known as INEGI on Monday, which could influence the Bank of Mexico’s (Banxico) decisions in the last two meetings of 2023. However, market participants estimate Banxico to hold rates for the remainder of the year at 11.25%.

Daily Digest Market Movers: Mexican Peso on the defensive as inflation dips amid risk-off impulse

  • Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, below the 4.47% of estimates.
  • The core CPI inflation in Mexico stood stickier at 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
  • A Citi Banamex poll showed economists estimate headline inflation at 4.70% and core at 5.09% for the year’s end.
  • Analysts polled by Citi Banamex foresee the USD/MXN to end 2023 at 17.80, up from 17.60, and for 2024 at 18.86, up from 18.70 two weeks ago.
  • On October 4, 2023, the IMF raised Mexico’s growth projection in 2023 from 2.6% to 3.2% and from 1.5% foreseen in July to 2.1% for 2024.
  • Banxico’s September poll amongst economists reported that interest rates are expected to remain at 11.25% while inflation would dip to 4.66%.
  • The same poll shows the USD/MXN exchange rate is set to finish at around 17.64, down from 17.75.
  • Mexico’s S&P Global Manufacturing PMI for September came at 49.8, sliding to contractionary territory and below August’s 51.2, as the economy loses steam.
  • The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).
  • Banxico’s Government Board highlighted Mexico’s economic resilience and the strong labor market as the main drivers to keep inflation at the current interest rate level.

Technical Analysis: Mexican Peso at the brisk of depreciating to 19.00

The USD/MXN daily chart portrays the exotic pair as bullish-biased after hitting a new cycle high of 18.48 on Friday, above the April 5 high of 18.40. If buyers reclaim 18.50, that will extend the Mexican Peso’s losses with the pair aiming towards the March 24 swing high at 18.80, which, if cleared, would expose the 19.00 figure. On the other hand, if sellers reclaim the 200-day Simple Moving Average (SMA) at 17.79, that would pave the way to challenge the September 30 low of 17.34.

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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