Mexican Peso falls Friday but secures weekly gain against US Dollar

  • Mexican Peso down 0.35% vs. USD, hit by strong US jobs data and Mexico’s investment decline.
  • S&P maintains Mexico’s BBB rating, focusing on 2024 elections impact.
  • US economic vigor from employment, Factory Orders and consumer sentiment adds to MXN pressure.

The Mexican Peso (MXN) losses territory against the US Dollar (USD) on Friday following a jobs report revealed by the US Bureau of Labor Statistics (BLS). The report signaled the economy in the United States (US) remains solid amid a tight labor market. Besides that, weaker-than-expected data from Mexico sponsored the exotic pair with a leg up ahead of the weekend. The USD/MXN trades at 17.14, 0.37% up, but down 0.10% in the week.

According to November’s data revealed by the National Statistics Agency, Mexico witnessed a dip in Gross Fixed Investment. It should be said that S&P maintained Mexico´s sovereign debt rating as BBB ahead of the general elections on June 2, 2024.

Across the borders, the US Nonfarm Payrolls (NFP) report revealed January’s employment data, which was outstanding, painting an upbeat economic outlook for the US. Further data revealed that Factory Orders rose moderately, while American household sentiment remained positive.

Daily digest market movers: Mexican Peso loses ground on strong US jobs report

  • Mexico´s Gross Fixed Investment fell -1.3% MoM in November, below October’s 1.7% expansion.
  • S&P Global confirmed Mexico´s BBB foreign currency rating and BBB+ local currency long-term debt rating.
  • S&P Global affirmed that stable macroeconomic conditions, with a real growth in Gross Domestic Product above 3% in 2023 that is supported by solid domestic demand and moderating inflation, prepare the way for the general elections in June.
  • The US Nonfarm Payrolls for January showed the economy created 353K jobs while exceeding forecasts of 180K and upwardly revised figures for December. Average Hourly Earnings in monthly and yearly numbers rose, signaling that workers are asking for better salaries, while the Unemployment Rate was unchanged at 3.7%.
  • Factory Orders for newly manufactured goods climbed modestly by 0.2%, aligning with estimates and trailing November’s 2.6% expansion.
  • The University of Michigan Consumer Sentiment index on its final reading for January improved to 79.1 from 78.9. Inflation expectations for one year were 2.9%, down from 3.1%, and for five years they were flat at 2.9%.

Technical Analysis: Mexican Peso weakens further, as USD/MXN buyers target 17.20

The USD/MXN remains trading sideways, but it has pierced above the 50-day Simple Moving Average (SMA) at 17.13, which could pave the way for further gains. If buyers achieve a daily close above that level, they should remain hopeful of challenging the 200-day SMA at 17.32. That level would be followed by the 100-day SMA at 17.38. Once that area is cleared, the exotic pair could extend its gains to 17.50.

Conversely, a bearish resumption could happen if USD/MXN slips below the 50-day SMA, clearing the way toward the January 22 daily low of 17.05. Further downside is expected once the pair breaks below the 17.00 figure.

USD/MXN Price Action – Daily Chart

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Source: https://www.fxstreet.com/news/mexican-peso-weakens-against-us-dollar-on-us-nfp-data-202402021731