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- Mexican Peso weighed down by steek and aluminum tariffs enacted by The White House.
- Mexican automobile production and exports declined, creating a headwind for the emerging market currency.
- USD/MXN traders eye testimony from Fed Chair Jerome Powell on Tuesday.
The Mexican Peso depreciated against the US Dollar on Monday after US President Donald Trump decided to apply 25% tariffs on aluminum and steel imports into the United States (US), including Mexico and Canada. At the time of writing, the USD/MXN trades at 20.67, a gain of 0.66%.
On Sunday, Trump stated that he would apply tariffs on base metals. He added that reciprocal tariffs could be enacted as soon as Tuesday or Wednesday and that the tariffs would address the deficit.
The USD/MXN jumped on those remarks, extending its gains during the North American session. Meanwhile, the market mood remained upbeat, as depicted by US equities trading with gains.
Mexican data revealed that auto production dipped and exports plummeted for the third consecutive month in January, according to the Instituto Nacional de Estadistica Geografia e Informatica (INEGI).
Earlier, Banxico Governor Victoria Rodriguez Ceja was dovish, revealing that the Central Bank could cut rates of the same magnitude as in February, adding that the job of bringing inflation to the 3% goal has not concluded.
Mexican Industrial Production for December is expected to remain unchanged at 0.1% MoM. US Federal Reserve (Fed) Chair Jerome Powell will cross the wires in the US for his semi-annual testimony at the US Congress. US inflation data on the consumer and producer side and retail sales will also update the status of the US economy.
Daily digest market movers: Mexican data failed to cap Peso’s fall spurred by Trump’s rhetoric
- Mexico’s Auto Exports plunged from -5.8% YoY to -13.7% in January. Production dipped from 4.2% to 1.7% YoY.
- Banxico’s Rodriguez added that Mexico’s role in US production chains allowed American consumers access to products at competitive prices. She said the central bank remains attentive to what might happen in March after the 30-day grace period provided by Trump.
- She added that despite being volatile, the Mexican Peso market has operated in an orderly way.
- The New York Fed Survey of Consumer Expectations revealed that US consumers expect inflation to remain at 3%. For five years, prices are expected to edge up from 2.7% to 3% in December.
- Trade disputes between the US and Mexico remain in the boiler room. Although the countries found common ground previously, USD/MXN traders should know that there is a 30-day pause and that tensions could arise toward the end of February.
- Money market fed funds rate futures are pricing in 39 basis points (bps) of easing by the Fed in 2025.
USD/MXN technical outlook: Mexican Peso poised for further losses
The USD/MXN uptrend remains in place, but the exotic pair could remain sideways in the short term, trading within the 20.30 – 20.70 area. Momentum remains bullish, as depicted by the Relative Strength Index (RSI), but buyers need to push prices above 20.70, so they could target higher prices.
The next resistance would be the January 17 daily peak at 20.90 before testing the 21.00 figure and the year-to-date (YTD) high at 21.29. Conversely, a drop below the 50-day Simple Moving average (SMA) at 20.57 could clear the path toward the 100-day SMA at 20.22. On further weakness, look for a test of 20.00.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the 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. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
