Mexican Peso gains on US Dollar amid risk-on mood, falling US yields

• Mexican Peso gains, driven by a soft US Dollar due to lower US Treasury yields and upbeat market mood.
• Market anticipates Consumer Confidence, auto data and Banxico's rate decision.
• Powell's rate cut remarks prompt cautious trading; speeches by Fed's Mester, Kashkari, Collins in focus.

The Mexican Peso (MXN) advanced against the US Dollar (USD) in early trading during the North American session as US Treasury bond yields edged lower, a headwind for the Greenback. A risk-on impulse, as witnessed by Wall Street posting gains, is a tailwind for the Mexican currency. Traders await inflation figures and the Bank of Mexico (Banxico) monetary policy meeting on Thursday. The USD/MXN exchanges hands at 17.01, down 0.54%.

Mexico´s economic calendar will gather some steam on Wednesday with the release of Consumer Confidence data. Then automobile industry data arrives on Wednesday. By Thursday, Banxico will get an early update on inflation ahead of their decision. The central bank will hold rates unchanged, most analysts predict.

Meanwhile, Federal Reserve (Fed) Chair Jerome Powell said the US central bank is in no rush to cut rates, instead reassuring the majority of Fed officials to expect three rate cuts. Ahead in the day, traders will get cues from Loretta Mester, Neil Kashkari and Susan Collins.

Daily digest market movers: Mexican Peso gathers traction awaiting crucial inflation data

• Mexico´s economic docket on Wednesday:
  • Consumer Confidence was 46.8 in December, worse than November’s reading.
  • Auto Exports were virtually unchanged at 16% YoY.
  • Auto Production decreased in December by -9.9%.
• Mexico´s Consumer Price Index (CPI) in January is expected to rise from 0.71% to 0.88% MoM, while annual figures are foreseen at 4.88%, up from 4.66%.
• The US economy remains resilient after the first batch of data was released in February. Stronger-than-expected PMIs and a hot Nonfarm Payrolls report paint an optimistic outlook for the economy.
• Neil Kashkari commented that a strong economy means the Fed is in no hurry to make interest rate cuts. Kashkari acknowledged that inflation is making “rapid progress” toward the Fed’s 2% target and added that policy could not be sufficiently restrictive.
• Chicago Fed President Austan Goolsbee noted that inflation could remain falling amid a strong US economy,
• S&P Global comments about Mexico:
  • Confirmed Mexico´s BBB foreign currency rating and BBB+ local currency long-term debt rating.
  • Affirmed that stable macroeconomic conditions, with real growth in Gross Domestic Product above 3% in 2023, is supported by solid domestic demand and moderating inflation.

Technical analysis: Mexican Peso surges threatening to conquer the crucial 17.00 mark

The USD/MXN shifted from neutral to downward biased once it fell below the 50-day Simple Moving Average (SMA) at 17.12, which opened the door for further losses. A breach of that level exposed strong support, as seen at 17.05. Further downside is seen at the psychological 17.00 figure, followed by the current year-to-date low of 16.78.

On the other hand, if buyers reclaim the 50-day SMA, that can pave the way to test the 200-day SMA at 17.31. Upside risks emerge once that barrier is cleared. The next real resistance comes at 17.40, the 100-day SMA.

USD/MXN Price Action – Daily Chart