.jpg)
- The Mexican peso is trading in a narrow range on Tuesday as the currency recovers from the post-election sell-off.
- President-elect Claudia Sheinbaum is seeking to calm markets with positive messages about the economy and the popularity of reforms.
- The USD/MXN continues to decline amid a short and medium-term uptrend.
The Mexican peso (MXN) rose on Tuesday amid positive risk appetite and after the post-election sell-off – which saw the currency lose an average of 10% against its major peers – run out of steam.
market Willingness to take risks US stock indices remain strong after US stock indices reached all-time highs on Monday led by a rise in technology, and Asian investors carried the baton during their session. The risk-on tone provides a constructive backdrop for the peso, which tends to perform better when investors have a greater appetite for risk.
The Mexican peso is supported by the release of higher Mexican GDP aggregate demand and private spending data for the first quarter.
Data from INEGI showed on Tuesday that total demand showed a rise of 1.5% quarter-on-quarter and 2.6% year-on-year, compared favorably with 0.4% and 2.2% respectively recorded in the previous quarter.
Private spending rose 1.5% q/q and 3.6% y/y in the first quarter which is higher than 0.9% in the previous quarter, but lower than the 5.1% y/y for the fourth quarter.
At the same time, the USD/MXN pair was under pressure from lower-than-expected US prices Retail Data for May and a significant downward revision to negative territory for preliminary estimates for April.
At the time of writing, one US dollar (USD) buys 18.34 Mexican pesos, EUR/MXN is trading at 19.69 and GBP/MXN is trading at 23.29.
The Mexican peso reaches bottom after heavy selling
The Mexican peso continues its recovery on Tuesday, as the downward pressure that saw the currency sell off dramatically following the June 2 election loses momentum.
Despite lingering concerns about a host of constitutional reforms that the new left-leaning coalition government wants to make, ranging from increasing the minimum wage to judicial reform, speculators appear to have eased into pushing the peso lower.
Analysts at Capital Economics see the USD/MXN price as a fair price at 19.00, the June 12 high. It is likely that the excess long position that built up in the peso when it rose to 16.20 in May has now been completely burned out.
New Mexican President Claudia Sheinbaum sought to calm investors on Monday, saying that “Mexico’s economy is healthy and strong… [there is] “Nothing to worry about.”
She also cited independent polls conducted over the weekend that suggested her party’s controversial judicial reforms – which market commentators blamed for peso selling – had the support of the population at large.
Technical Analysis: USD/MXN is still falling within the uptrend
USD/MXN is still in the middle of a pullback within an uptrend. The correction could continue further, but then the prevailing uptrend is likely to reassert itself. The next higher target is at 19.22 (March 2023 high).
USD/MXN daily chart
A break above Friday’s high of 18.68 would provide additional confirmation of further upside towards the target of 19.22.
However, the Relative Strength Index (RSI) has just exited the overbought zone, which also indicates the risk of the correction continuing deeper. However, the steady uptrend is likely to resume eventually.
The short and medium term trends are now strongly bullish. However, the long-term trend direction is in doubt after the breakout above the October 2023 high. Before that, it was bearish.
Frequently asked questions about the Mexican Peso
The Mexican Peso (MXN) is the most widely traded currency among its counterparts in Latin America. Its value is widely determined by the performance of the Mexican economy, the policy of the country’s central bank, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans living abroad, especially in the United States. Geopolitical trends can also move the Mexican peso: for example, offshoring – or the decision by some companies to move manufacturing capacity and supply chains closer to their home countries – is seen as a catalyst for the Mexican currency as the country is a major manufacturing hub in the Americas. . Another catalyst for the Mexican peso is oil prices as Mexico is a major exporter of this commodity.
The main goal of the Mexican Central Bank, also known as Banxico, is to keep inflation at low and stable levels (at or near its 3% target, the midpoint of the 2% to 4% tolerance range). To this end, the Bank sets an appropriate level of interest rates. When inflation is too high, Banxico will try to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the economy as a whole. Higher interest rates are generally a positive for the Mexican Peso (MXN) because they lead to higher returns, making the country a more attractive place for investors. Conversely, low interest rates tend to weaken the Mexican peso.
Macroeconomic data releases are key to assessing the state of the economy and can have an impact on the valuation of the Mexican Peso (MXN). A strong Mexican economy, based on high economic growth, low unemployment, and high confidence, is good for the Mexican peso. Not only does it attract more foreign investment, it may encourage the Bank of Mexico (Banxico) to increase interest rates, especially if this force is accompanied by higher inflation. However, if economic data is weak, the value of the Mexican peso is likely to decline.
As an emerging market currency, the Mexican peso tends to do its best work during periods of risk, or when investors view broader market risk as low and are therefore keen to take on higher-risk investments. Conversely, the Mexican peso tends to weaken in times of market turmoil or economic uncertainty as investors tend to sell high-risk assets and flee to more stable safe havens.
