Mexican Peso tanks on Trump cabinet picks, trade war concerns
- Mexican Peso tumbles following Trump’s appointments of Mike Waltz and Marco Rubio.
- Banxico expected to cut rates by 25 bps amid heightened US-Mexico tensions.
- Upcoming US inflation and Retail Sales data to impact USD/MXN currency pair.
The Mexican Peso extends its losses against the Greenback on Tuesday on risk aversion due to US President-elect Donald Trump’s first appointments to his cabinet. Trump’s campaign proposals of increasing tariffs and lowering taxes are inflation-prone, which would exert pressure on the Federal Reserve (Fed) to keep rates higher than otherwise. At the time of writing, the USD/MXN trades at 20.62, gaining 1.38%.
Risk aversion due to Trump’s naming Mike Waltz as National Security Advisor and Marco Rubio as Secretary of State hurt the prospects of the Mexican currency, which has tumbled over 2% since Monday. Waltz and Rubio are known for their tough stance on China, hinting that tariffs would likely be imposed.
Mexico’s economic schedule remains absent, though USD/MXN traders are eyeing the Bank of Mexico (Banxico) monetary policy decision on November 14. According to Reuters, 19 of 20 economists expect a 25-basis-point (bps) rate cut to the main interest reference rate, pushing it down to 10.25%.
On Monday, Mexico’s Secretary of Economy Marcelo Ebrard suggested that the Mexican government could retaliate with its own tariffs on US imports. He stressed that tariffs would increase prices in the US.
Recently, Fed officials had crossed the wires. Governor Christopher Waller failed to comment on monetary policy. Contrarily, Richmond Fed President Thomas Barkin stated that “Inflation might be coming under control or might risk getting stuck above the Fed's 2% target.”
Ahead this week, Mexico’s economic docket will feature the Banxico policy decision. On the US front, Fed speakers, inflation on the consumer and producer sides, and Retail Sales will dictate the USD/MXN pair direction moving forward.
Daily digest market movers: Mexican Peso on the defensive ahead of US CPI
- The USD/MXN has risen as the US Dollar Index (DXY), which tracks the performance of the American currency against another six, climbs to a six-month high of 106.15, up by over 0.60%.
- Mexico October Consumer Confidence, revealed on Monday, shows that Mexicans are slightly more optimistic about the economy.
- Industrial Production figures for September were mixed as traders brace for Banxico’s monetary policy decision.
- The US Consumer Price Index (CPI), to be revealed on November 13, is expected to edge up from 2.4% to 2.6% YoY and is projected to remain unchanged on MoM figures at 0.2%.
- The Core CPI is projected to stall on annual and monthly figures, each at 3.3% and 0.3%.
- Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 23 bps of Fed easing by the end of 2024.
USD/MXN technical outlook: Mexican Peso plunges again as USD/MXN rises above 20.50
The USD/MXN uptrend remains intact, with the Greenback extending its gains sharply, threatening to challenge the year-to-date (YTD) high of 20.80 reached on November 6. If surpassed, the next resistance would be the psychological 21.00 figure, followed by the March 8, 2022 peak at 21.46.
Conversely, sellers must push the exchange rate to the 20.00 figure, if they would like to challenge the 50-day Simple Moving Average (SMA) at 19.70. On additional weakness, the USD/MXN next support would be the psychological figure at 19.50, followed by the October 14 low of 19.23.
Mexican Peso FAQs
The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.
The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall 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.
Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.
As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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