Mexican Peso rallies for fourth day as US markets rebound
- Mexican Peso extends gains, while US data takes a backseat; Trump tariffs pose new risks.
- US Retail Sales beat expectations, but manufacturing activity in New York collapses, keeping the US Dollar under pressure.
- OECD warns Trump’s tariffs could trigger a Mexican recession as economic growth forecasts remain well below government targets.
The Mexican Peso extended its gains against the US Dollar for the fourth consecutive trading day as Mexican financial markets remained closed due to a national holiday. Data from the United States (US) was overshadowed by an “unexpected” optimism in the financial market as most US equity indices recovered. The USD/MXN trades at 19.87, down 0.20%.
Wall Street traded with modest gains on Monday. Following a decent February Retail Sales report, the US Dollar treads water, while activity plummeted in the NY Fed Empire State Manufacturing Index. All this happened as the Mexican economic docket remains absent with traders awaiting the release of Aggregate Demand and Private Spending figures on March 19 and 20, respectively.
In the meantime, the Organization for Economic Cooperation and Development (OECD) claimed that US President Donald Trump’s tariffs on Mexican products could spur a recession in Mexico, alongside an economic slowdown in the US.
Private economists polled by Banco de Mexico in February revealed they expect the economy to grow at a 0.81% pace. Nevertheless, last Friday’s dismal Industrial Production figures and a deterioration in Consumer Confidence would likely weigh on the economy, which is expected to miss the Finance Minister's forecasts above the 2% threshold.
Daily digest market movers: Mexican Peso unfazed by OECD’s economic projections
- Banxico is expected to continue easing policy at the March 27 meeting spurred by the evolution of the disinflation process and a stagnant economy.
- Last Wednesday, Mexican Finance Minister Edgar Amador Zamora said the national economy is expanding but shows signs of slowing down linked to trade tensions with the US.
- The OECD updates its forecasts, which include 25% tariffs applied on most goods from April. According to the OECD, the US economy is projected to grow by 2.2% in 2025 and 1.6% in 2026.
- The OECD projects that Mexico’s economy will be severely impacted, contracting -1.3% in 2025 and -0.6% next year.
- US Retail Sales in February rose by 0.2% MoM, missing estimates of 0.6%, and improved compared to January’s -1.2% fall.
- The New York Fed showed that manufacturing activity dipped from 5.7 to -20, with input prices increasing to their highest level in more than two years.
- Money market has priced in 64 basis points of easing by the Fed in 2025, which has sent US Treasury yields plunging alongside the American Currency.
- Trade tensions between the US and Mexico remain in focus with the Mexican Peso's outlook hinged on negotiations. A trade agreement could support a currency recovery, easing economic uncertainty. Nevertheless, higher tariffs and the USD/MXN may continue rising as protectionist policies could dampen Mexico’s economic growth, potentially leading to a recession.
USD/MXN technical outlook: Mexican Peso climbs as USD/MXN drops below 20.00
The USD/MXN remains below the 20.00 figure, which keeps sellers hopeful of lower spot prices. Nevertheless, if they're going to revisit 2024 levels, they must clear the 200-day Simple Moving Average (SMA) at 19.65. In that outcome, the next key support levels would be 19.50, 19.00, and August 20, 2024 low at 18.64.
Otherwise, if USD/MXN rallies past 20.00, this would clear the path to test the 100-day SMA at 20.35.
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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