Mexican Peso holds steady after mixed US jobs report

July 5, 2024 9:16 pm

  • Mexican Peso hit an eight-day high of 17.99 before losing traction.
  • Light economic week in Mexico; upcoming data includes May CPI, Consumer Confidence, and Banxico meeting minutes.
  • US Nonfarm Payrolls exceed expectations; revisions to prior months fuel predictions of Fed easing.

The Mexican Peso was virtually flat against the US Dollar on Friday after seesawing within the 17.99 – 18.19 range. Mixed US jobs data sparked speculation that the Federal Reserve (Fed) could cut interest rates in September, sending the emerging market currency soaring before the USD/MXN trimmed its losses and traded at 18.08, posting minimal gains of 0.02%.

Wall Street trades mixed, while the Greenback stages a slim recovery against the Mexican currency. Mexico’s economic docket is empty, with traders eyeing the release of the Consumer Price Index (CPI) for May next week, along with Consumer Confidence and the Bank of Mexico’s (Banxico) last monetary policy meeting minutes.

The US Nonfarm Payrolls report for June beat estimates, though downward revisions to April and May’s figures prompted traders to increase their bets that the Fed will begin its easing cycle in September.

Additional data showed that Average Hourly Earnings (AHE) were flat monthly but dipped in the twelve months to June and the Unemployment Rate rose, according to the US Bureau of Labor Statistics (BLS).

Following the data release, US Treasury yields tumbled, with the 10-year benchmark note rate falling six-and-a-half basis points to 4.284%, a headwind for the US Dollar. Meanwhile, the US Dollar Index, which tracks the buck’s performance against six currencies, dropped 0.12% yet trimmed some earlier losses and is currently around 105.00.

According to the CME FedWatch Tool, the odds for a September 2024 cut are 70% higher than the chance a day ago of 66%.

Daily digest market movers: Mexican Peso rises further on US Dollar weakness

  • Banxico’s survey showed that economists estimate the Gross Domestic Product (GDP) to end the year at 2%, down from 2.1%. They expect Banxico to cut rates from 11.00% to 10.25%, up from 10.00% projected in May.
  • Some analysts in Mexico estimate the economy might slow down but dodge a recession, according to the National Statistics Agency (INEGI) Coincident Indicator. Despite that, they said reforms pushed by President Andres Manuel Lopez Obrador (AMLO), particularly the judiciary reform, could affect the country’s creditworthiness.
  • US Nonfarm Payrolls grew by 206K, exceeding the estimated 190K, but April and May were revised lower from 165K to 108K and 272K to 218K, respectively.
  • Average Hourly Earnings (AHE) edged lower from 4.1% to 3.9% YoY, as expected, while the Unemployment Rate rose from 4% to 4.1%.

Technical analysis: Mexican Peso stays near weekly lows, USD/MXN hovers around 18.10

The USD/MXN dropped to an eight-day low of 17.99 just to find bids that pushed the exchange rate back toward the 18.10 area. Friday’s price action is forming a Doji candle, an indication that neither buyers nor sellers are winning the battle that could keep the exotic pair trading within the 18.00-18.10 in the short term.

Momentum shows a slight recovery as the Relative Strength Index (RSI) turned flat in bullish territory after posting three days of lower readings. This confirms the USD/MXN range-bound trading.

For a bullish resumption, the USD/MXN must surpass 18.10, followed by a rally above the June 28 high of 18.59, so buyers can challenge the YTD high at 18.99. Conversely, sellers will need a drop below 18.00, which could extend the pair’s decline toward the December 5 high, which turned support at 17.56, followed by the 50-day Simple Moving Average (SMA) at 17.37.

Banxico FAQs

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

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