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The Mexican Peso (MXN) seesaws between marginal gains and losses in its key pairs on Tuesday after shrugging off poor Retail Sales data from Mexico and hawkish commentary from Federal Reserve (Fed) speakers on Monday, and continuing to drift higher.\u00a0\u00a0<\/p>\n
The wide interest-rate differential between Mexico and most major economies \u2013 with relatively higher interest rates in Mexico (11.00%) providing an attractive draw for carry traders \u2013\u00a0is a key factor driving MXN\u2019s uptrend, with little prospect of the gap closing anytime soon.\u00a0<\/p>\n
USD\/MXN is trading at 16.55, EUR\/MXN at 17.98 and GBP\/MXN at 21.05, at the time of writing.\u00a0<\/p>\n
The Mexican Peso trades relatively flat on Tuesday despite recent data showing a fall in Mexican Retail Sales<\/a> on both a monthly and yearly basis.\u00a0<\/p>\n Whilst the data indicated the high interest rates imposed by the Bank of Mexico (Banxico) are probably having the desired effect of cooling the economy, Banxico has not signaled it is in a hurry to reduce interest rates yet.\u00a0<\/p>\n Indeed on Friday, the Deputy Governor of Banxico, Irene Espinosa, said she thought interest rates should remain at their current level until inflation had been brought down on a sustainable basis.\u00a0<\/p>\n The generally somber market mood on Tuesday is capping the Peso\u2019s upside, however, as investors retreat from risk assets and commodities \u2013 MXN included \u2013 out of a fear high interest rates are here to stay. Asian stocks are down and Oil, metals and softs are following suit.\u00a0<\/p>\n The change in sentiment comes as a result of commentary from central bankers, in both the US and Australia, that suggests they are not only reluctant to cut interest rates in the near future but are even discussing raising them.\u00a0<\/p>\n In the US, Federal Reserve Bank<\/a> of Cleveland President Loretta Mester said<\/a> inflation risks were \u201ctilted to the upside\u201d, that the Fed could \u201ceven raise them (rates)\u201d if inflation rose, and that it was \u201cno longer appropriate\u201d to expect the Fed to make three cuts this year.\u00a0<\/p>\n The minutes<\/a> of the RBA<\/a> May meeting, released on Tuesday morning, showed that the board of governors discussed the possibility of raising interest rates. It was the first time in many months they had discussed further policy tightening.\u00a0<\/p>\n USD\/MXN \u2013 or the number of Pesos that can be bought with one US Dollar \u2013 edges lower on Tuesday, continuing its overall bearish bias of recent weeks.\u00a0<\/p>\n USD\/MXN is falling in a short-term downtrend within a descending channel that favors short bets over longs.\u00a0<\/p>\nSomber market mood caps Peso\u2019s upside<\/h3>\n
Technical Analysis: USD\/MXN hits first downside target<\/h2>\n
USD\/MXN 4-hour Chart\u00a0<\/h3>\n
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