The Mexican Peso has been under pressure recently, depreciating against the US Dollar as high US Treasury yields and news of China’s stimulus program falling short of market expectations weighed on the emerging market currency. The USD/MXN pair traded at 19.35, up over 0.50% on Tuesday. This decline was also exacerbated by a negative output gap hinted at by Banxico Deputy Governor Omar Mejia, potentially influencing future inflation.
Traders are eagerly awaiting Mexico’s September inflation data and Banxico meeting minutes, with expectations for further rate cuts by the end of the year. Analysts predict that the Consumer Price Index (CPI) in Mexico for September will fall to 4.62%, its lowest level since March. Meanwhile, the Core CPI is expected to dip to 3.96%, continuing its downward trend for the 20th consecutive month.
In the last Banxico meeting, the central bank lowered rates to 10.50% in September. It is anticipated to lower borrowing costs by 25 basis points in the upcoming meetings in November and December, with expectations for the main reference rate to finish the year at 10% and to 8% in 2025. Banxico Governor Victoria Rodriguez mentioned that future rate cuts could be larger as long as the inflation rate continues to decrease.
On the other hand, the US Nonfarm Payrolls report last Friday sparked the Federal Reserve to reconsider its rate cuts. This led to a reversal in market expectations, causing traders to adjust to the possibility of just a 25 basis points cut instead of the previously anticipated 50. Fed officials have also hinted at more rate cuts if inflation declines, with the focus now on various US economic indicators and speeches by Fed officials.
The Mexican Peso remains pressured by the strong US Dollar as US Treasury yields continue to rise, further supporting the Greenback. Investors are closely watching the developments in both countries’ monetary policies and economic data, with the outlook for the Peso dependent on these factors. The Banxico poll projects further rate cuts by the central bank to 10% by the end of 2024.
In terms of technical analysis, the USD/MXN pair is currently above the 50-day Simple Moving Average (SMA) but remains upwardly biased. Momentum indicators suggest a potential extension of gains if the pair clears the psychological level of 19.50. On the other hand, a bearish scenario could unfold if the pair drops below the October 4 wing low of 19.10, exposing the 19.00 support level and potentially the 100-day SMA at 18.64.
Overall, the Mexican Peso is facing downward pressure against the US Dollar due to various domestic and international factors. The outlook for the Peso will depend on Mexico’s economic data, monetary policy decisions, and developments in the US economy. Investors will be closely monitoring upcoming releases such as inflation data and Banxico meeting minutes for insights into future rate cuts and the Peso’s performance in the global currency markets.
