Market Data 
- The Mexican Peso is trading little changed on Wednesday after making gains on the previous day.
- The Peso has been aided by stronger-than-expected Mexican jobs data and idiosyncratic factors impacting its peers.
- Technically, USD/MXN is finding support at a major trendline as it consolidates within a broader uptrend.
The Mexican Peso (MXN) mostly trades flat in its key pairs on Wednesday after strengthening on the previous day, buoyed by lower-than-expected unemployment data from Mexico.
Idiosyncratic factors impacted each of the Peso’s major pairs, with the key themes being increasing political instability and weaker economic data in Europe and continued expectations that the Federal Reserve (Fed) will move to cut interest rates in the US.
Mexican Peso gains after release of Jobless data
The Mexican Peso strengthened on Tuesday after data from Mexico’s National Statistics Agency (INEGI) showed the Jobless Rate fell to 2.5% in October from 2.9% in September, well below expectations of remaining at a stable 2.9%. On a seasonally adjusted basis, unemployment fell to 2.5% from 2.7% previously.
The Mexican Peso rose a third of a percentage point against the US Dollar (USD) to close at 20.33 on Tuesday. It was aided by a Greenback that weakened due to continued expectations that the Federal Reserve (Fed) will cut interest rates in December. A series of Fed speakers repeated broadly the same message: that they thought the US economy was in a good position and interest rates should therefore continue to fall. Lower interest rates are negative for the US Dollar (USD) as they reduce foreign capital inflows.
The Peso rose a quarter of a percentage point to close at 21.37 to the Euro (EUR) on Tuesday as the single currency faced downside pressure from heightened political risk in France, where the minority centrist government of Prime Minister Michel Barnier faces a vote of no confidence after opposition parties rejected his proposed Budget. If successful, the vote would bring down the French government and lead to political turmoil in one of the Eurozone’s key member states.
Against the Pound Sterling (GBP) the Peso closed Tuesday up two-tenths of the percent at 25.77 as a run of weak data for the UK – most recently in the form of lower-than-expected Retail Sales in October and activity data in November – led markets to price in a higher probability of the Bank of England (BoE) cutting interest rates before the end of the year.
Technical Analysis: USD/MXN finds support from long-term trendline
USD/MXN consolidates in a range with an up-sloping trendline as a base. More broadly, the pair is rising in a channel and is in an uptrend on a medium and long-term basis.
USD/MXN 4-hour Chart
The pair is currently trading along support from the trendline but it will probably rise up to the top of the range at around 20.70 (red dashed line) as it continues its oscillations.
A decisive break above the top of the range at 20.80 would be required to signal the start of a more bullish short-term trend in line with longer-term up cycles. Such a move would be likely to rally up to a target at about 21.00, where resistance will likely kick in because of its round-number and psychological significance.
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.
