The Mexican Peso has strengthened for the second consecutive day against the US Dollar as the USD/MXN drops close to 1%. This positive market reaction comes after the choice of Marcelo Ebrard as the economy minister was announced. Investors cheered the news, leading to the rally of the Mexican Peso. The Banxico monetary policy decision is expected to hold rates unchanged amid inflation concerns and recent Peso depreciation.
President-elect Claudia Sheinbaum revealed the first members of the cabinet on Thursday, which included Marcelo Ebrard as economy minister and Juan Ramon de la Fuente as foreign minister. These appointments were seen positively by traders, especially since Ebrard will oversee the USMCA free trade agreement review. Data-wise, the Mexican economic docket featured Economic Activity, which plunged in April but exceeded estimates in the twelve months to April.
Most analysts expect Banxico to keep rates unchanged following the 6.95% depreciation of the Mexican Peso after the June 2 general election. The consensus was expecting a 25-basis-point cut on June 27, but not unanimously as Deputy Governors Jonathan Heath and Irene Espinosa expressed concerns about inflation risks. Across the border, June S&P Global Flash PMIs exceeded estimates, signifying economic robustness.
The Mexican Peso advanced after mixed economic activity data was released. Citibanamex Survey showed that most analysts expect Banxico to cut rates at the August 8 meeting. The USD/MXN exchange rate is estimated to reach 18.70 by the end of the year. S&P Global Manufacturing and Services Flash PMIs in June expanded above estimates, while US Existing Home Sales in May were lower than expected at 4.11 million.
Technical analysis shows the USD/MXN is downward biased as it falls below 18.30, potentially targeting the 18.00 psychological level. The Relative Strength Index (RSI) indicates momentum is favoring sellers. The first support for USD/MXN would be 18.00, followed by the 50-day Simple Moving Average (SMA) at 17.29. On the bullish side, USD/MXN needs to clear 18.50 to retest the year-to-date high of 18.99.
The Mexican Peso (MXN) is influenced by various factors including the performance of the Mexican economy, central bank policy, foreign investment, remittances, geopolitical trends, and oil prices. Banxico’s main objective is to maintain low and stable inflation, which affects interest rates and in turn impacts the value of MXN. Macroeconomic data releases are important for assessing the state of the economy and the valuation of MXN. As an emerging-market currency, MXN tends to perform well during risk-on periods and weakens during times of market turbulence or economic uncertainty.
