Mexican Peso extends nine-day gains as Gulf War de-escalates
- USD/MXN extends nine-day slide as soft ADP pressures Dollar.
- Hormuz deal hopes support risk appetite before Banxico decision.
- Fed hawks keep tightening risks alive ahead of NFP.
The Mexican Peso extends its gains for the ninth consecutive day on Wednesday, as the US Dollar remains on the back foot amid softer-than-expected US jobs data ahead of the crucial Nonfarm Payrolls report. The USD/MXN trades at 17.24, down 0.10%.
USD/MXN tumbles on weak US hiring data, ahead of Banxico’s meeting
According to a N12 report by Ravid, citing senior officials and sources, the agreement between Oman and Iran could be announced as early as tonight. The points of the deal include a temporary 60-day arrangement between Oman and Iran in the Strait of Hormuz, with a possible extension and the renewal of the ceasefire between the US and Iran.
The deal reveals that inbound ships will sail through Iranian waters, with Oman waters used as an exit from the Persian Gulf. This will allow 30 days for both parties to clear the mines from the central channel of Hormuz.
A Reuters poll revealed that most economists expect the Bank of Mexico (Banxico) to hold rates unchanged at 6.50% at the August 6 meeting. Recent data revealed that Consumer Confidence improved in June, while traders wait for the release of inflation data on Friday, which is expected to rise from -0.27% to 0.03% MoM. Core inflation is projected to dip from 0.24% to 0.22%.
In the US, the economic docket revealed that business activity in the services sector expanded below estimates, but improved. A measure of inflation within the ISM Services PMI edged higher, increasing the chances for further tightening by the Fed.
Regarding the labour market, private hiring in July eased from 98K to 44K, below estimates of 70K, according to the ADP Employment Change report.
Meanwhile, Federal Reserve officials are grabbing the headlines. Fed Governor Lisa Cook said she is ready to raise rates if inflation doesn’t cool, while adding that she favoured keeping interest rates steady to await further data.
Earlier, Minneapolis Fed President Neel Kashkari said it is now appropriate to begin a gradual rate hike with moderate increases rather than sharp jumps. Jeffrey Schmid from the Kansas City Fed added that maintaining a strict monetary policy is essential to fight "too high" inflation.
Investors' eyes turn to the release of the US Nonfarm Payrolls figures for July on Friday. Economists expect job creation of 80K and the Unemployment Rate to remain steady at around 4.2%.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 17.2377, extending its decline beneath the triple simple moving average (SMA) cluster, whose latest reading stands at 17.4126 and now acts as immediate resistance. Price location below this major average keeps the near-term bias bearish, while the Relative Strength Index (RSI) at 37.6 drifts toward oversold territory, hinting that downside momentum is still in place but becoming stretched.
On the topside, initial resistance is located at the triple SMA around 17.41, with further supply aligning with the shorter-term downward resistance trend line drawn from 18.1651 and, higher up, the broader descending trend line projected from the 21.0808 cycle high. In the absence of nearby mapped supports from the provided data, any attempt to stabilize would likely need a recovery back above the 17.41 area to ease immediate bearish pressure and open room for a corrective bounce within the dominant downward structure.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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