Market Data 
- Mexican Peso is slightly up versus the US Dollar on cautious trading as Consumer Confidence deteriorates.
- Decrease in Mexico’s Consumer Confidence and Manufacturing PMI slowdown highlight challenges amid Banxico’s rate adjustments.
- Remittances remain a key support for the Peso, overshadowing near-shoring gains amid broader economic considerations.
The Mexican Peso prints minuscule gains against the US Dollar on Thursday after the release of economic data from Mexico and the United States (US). That and recent Federal Reserve officials crossing the newswires keep the American currency pressured amid rate cut speculation. At the time of writing, the USD/MXN trades at 16.54, down 0.01%.
Mexico’s economic docket witnessed a drop in March’s Consumer Confidence, according to the National Statistics Agency (INEGI). Data shows the economy is still growing but began to lose some momentum as March’s Manufacturing PMI decelerated amid higher interest rates set by the Bank of Mexico (Banxico).
Meanwhile, Mexico’s remittances continued to be the main driver of the Peso’s strength. There’s speculation about near-shoring, but according to an article by EL CEO, in 2023 Foreign Direct Investment (FDI) stood at $36.058 billion, while remittances amounted to $63.345 billion. Sources cited by EL CEO stated, “We must not fail to point out that this is a gap in Mexico’s productive capacity and a lack of opportunities. We are getting the kind of external savings.”
In the meantime, the Bank of Mexico revealed its March meeting minutes, which showcased the Governing Council witnessed a split vote, with Deputy Governor Irene Espinosa dissenting from cutting rates.
The US economy witnessed a cooler labor market as more Americans applied for unemployment benefits. The Balance of Trader revealed that the deficit widened compared to January’s data.
Daily digest market movers: Mexican Peso strength unlinked to Foreign Direct Investment
- Banxico’s minute’s remarks highlighted that Deputy Governor Irene Espinosa dissented based on inflation expectations being above the central bank’s target.
- Mexico’s central bank lowered rates by 25 bps in March to 11%. Despite that, the Governing Council stated they would remain vigilant on inflation. According to the minutes, Banxico would remain data dependent, and highlighted that inflation risks remain tilted to the upside.
- Mexico’s Consumer Confidence stood at 47.3 in March, below February’s 47.4.
- A Reuters poll published on April 4 reveals that most economists foresee the USD/MXN appreciating 4.7% to 17.38 in twelve months, down from 18.24 projected in the March poll.
- Ahead on Thursday, Banxico releases the latest meeting minutes.
- According to Dafne Viramontes, the president of the Aguascalientes College of Economists, from 2013 to 2017, FDI amounted to $180 billion, while in the first five years of Andres Manuel Lopez Obrador’s presidency, it sank to $167 billion.
- US Initial Jobless Claims for the week ending March 30 rose by 221K, exceeding the consensus of 214K and last week’s 212K.
- The US Balance of Trade reported a $-68.9B deficit, more than the $-67.3B estimate and January’s $-67.6B.
- Philadelphia Fed President Patrick Harker commented that inflation is too high for rate cuts at present.
Technical analysis: Mexican Peso remains firm with buyers eyeing 16.32, October’s 2015 low
The USD/MXN remains bearish with sellers eyeing a retest of the year-to-date (YTD) low of 16.51. It appears the pair is consolidating near 16.50, unable to break below that level decisively, which could pave the way to test the October 2015 low of 16.32. Further downside is seen at the 16.00 figure.
On the flip side, If USD/MXN bulls stepped in, they must reclaim 16.70. Once cleared, the next resistance would be the 50-day Simple Moving Average (SMA) at 16.91, with further upside seen at the 100-day SMA at 17.02, ahead of the 200-day SMA at 17.18.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
