The Mexican Peso showed signs of weakening after the release of March Retail Sales data indicated a decline in consumer spending, hinting at a cooling economy. The data suggested that the Bank of Mexico (Banxico) may consider further interest rate cuts from the current historically high level of 11.00% to stimulate spending. This news contrasted with earlier remarks made by Banxico official Irene Espinosa, who advocated for keeping interest rates high to combat inflation.
The release of weak Retail Sales data caused the Mexican Peso to falter as the economy showed signs of strain. March saw a 0.2% decline in Retail Sales on a monthly basis and a 1.7% fall year-over-year, indicating a slowdown from the previous month’s positive results. The impact of high interest rates on the cost of credit and consumer spending was evident in the data, leading to speculation that Banxico may continue cutting interest rates, which could negatively affect the Peso.
Irene Espinosa’s comments on maintaining high interest rates provided a brief boost to the Mexican Peso on Friday. Her remarks suggesting no urgency in cutting rates and labeling the March rate cut as premature were well-received in the market. Conversely, Governor Victoria Rodriguez Ceja had supported the decision to cut rates, highlighting a division within the Banxico board. Espinosa’s stance was consistent with her dissent at the March meeting when she opposed the rate cut.
Technical analysis of USD/MXN indicated a downward trend, with the pair continuing its descent. The chart showed a short-term downtrend within a descending channel, favoring short positions over longs. The RSI indicated oversold conditions, suggesting a possible correction before further bearish movement. The medium and long-term trends also supported the likelihood of more downside for USD/MXN.
The significance of Retail Sales data in Mexico lies in its reflection of consumer spending, which is a key indicator of economic health. Changes in retail sales are closely watched as they impact the overall performance of the economy. A high reading is viewed as bullish for the Mexican Peso, signaling healthy consumer activity, while a low reading is seen as bearish, indicating economic challenges. The release of Retail Sales data on Monday highlighted the importance of monitoring economic indicators for currency traders and investors.
