The Mexican Peso (MXN) has been on an uptrend despite poor Mexican data and a somber market mood. The wide interest-rate differential between Mexico and Western countries favors the Peso in the carry trade, with little prospect of the gap closing anytime soon. USD/MXN has hit the conservative target for its range breakout.
Despite recent poor Retail Sales data from Mexico and hawkish comments from Federal Reserve speakers, the Mexican Peso continues to drift higher in its key pairs. The interest-rate differential between Mexico and major economies, with Mexico’s relatively higher interest rates, attracts carry traders. USD/MXN is trading at 16.55, EUR/MXN at 17.98, and GBP/MXN at 21.05.
The Mexican Peso remains relatively flat even after Retail Sales data showed a decline on both a monthly and yearly basis. The high interest rates set by the Bank of Mexico appear to be working to cool the economy, but Banxico has not indicated any urgency to reduce rates. Deputy Governor Irene Espinosa stated that interest rates should remain at their current levels until inflation stabilizes.
The overall market mood is somber, limiting the Peso’s gains as investors retreat from risk assets amid fears of prolonged high interest rates. Central bankers in the US and Australia have hinted at the possibility of raising rates in the future, adding to the cautious sentiment. In the US, there is talk of inflation risks and potential rate hikes, while the Reserve Bank of Australia discussed raising interest rates at their recent meeting.
Technical analysis shows USD/MXN in a short-term downtrend within a descending channel, favoring short bets. The pair has reached its conservative price target for the breakout at 16.54, with further downside potential to 16.34. The RSI momentum indicator is oversold, signaling caution for traders. The medium and long-term trends suggest more downside for USD/MXN.
The Mexican Peso’s value is influenced by factors such as the country’s economic performance, central bank policy, foreign investment levels, and geopolitical trends. Banxico aims to maintain low and stable inflation through interest rate adjustments. Strong economic data is positive for MXN, attracting investment and possibly leading to rate hikes. MXN tends to perform well during risk-on periods and weaken during market turbulence or economic uncertainty.
