Market Optimism Fuels Mexican Peso’s Advance
The Mexican peso appreciated against the dollar in Monday’s trading sessions. The local currency gained ground, driven by a higher risk appetite in the market due to expectations of easing recent trade tensions between the United States and China.
The exchange rate closed the day at 18.3961 units per dollar, compared to Friday’s 18.4411 units, according to official data from the Bank of Mexico (Banxico). This left the peso with a gain of 4.50 centavos, equivalent to 0.24 percent.
The dollar‘s price ranged from a high of 18.4485 units to a low of 18.3611 units. The Dollar Index (DXY) from the Intercontinental Exchange, which compares the dollar to a basket of six reference currencies, fell 0.13 percent to 98.82 units.
Optimism Surrounding China and US Trade Agreement
High-ranking economic officials from China and the United States reached a framework for a trade deal on Sunday, paving the way for US President Donald Trump and Chinese counterpart Xi Jinping to finalize it during a meeting in South Korea this week.
“The Mexican peso started the week with gains, touching a low of 18.36. Optimism about a potential trade deal between the US and China has reinforced confidence in emerging markets,” said Antonio Di Giacomo, an analyst at XS Latam.
Carry Trade Supports the Peso
The dollar also retreated as traders awaited the announcement of monetary policy from the Federal Reserve (Fed) mid-week. Market expectations are that the central bank will cut its benchmark rate by another 25 basis points.
“This context has favored high-beta and high-yield currencies, with the peso participating in this trade as it remains considered one of the last carry trade stories among liquid emerging markets,” said Felipe Barragán, strategist at Pepperstone.
Limited Advance Amidst Uncertainty
However, the peso’s advance was limited due to doubts about ongoing trade tensions with the United States. Mexico’s President Claudia Sheinbaum stated that negotiations on pending trade issues with Washington will be extended for a few more weeks.
“Investors remain willing to bet on Mexico for carry, but they are increasingly aware of assuming a local economic slowdown and a tense trade relationship with the US,” added Felipe Barragán, from Pepperstone, in his report.
Technical Analysis
In this context, analysts observe a sideways and slightly positive trend. “The price maintains its weekly range with low volatility, heavily sideways while waiting for data and catalysts,” said Juan Carlos Cruz, founder of México Financiero.
“We consider that the recovery bias will prevail, as the price continues to respect the 50-day moving average at 18.50 units,” said Grupo Financiero Banorte in a note. The bank highlighted the 18.30 units level as the next price target to be tested.
- Mexican Peso: The local currency that appreciated against the US dollar.
- Trade Deal Hopes: Optimism surrounding a potential trade agreement between China and the US.
- Carry Trade: Traders’ strategy of borrowing in a low-interest currency and investing in a higher-yielding one, in this case, supporting the Mexican peso.
- Federal Reserve (Fed): The US central bank expected to cut interest rates, contributing to the peso’s advance.
- Claudia Sheinbaum: President of Mexico City, indicating extended negotiation periods for trade issues with the US.
- Technical Analysis: Observations by market analysts about the peso’s sideways trend and key price levels.
- Question: What drove the Mexican peso’s appreciation against the dollar on Monday?
- Answer: The Mexican peso appreciated due to higher risk appetite in the market, fueled by expectations of easing trade tensions between the US and China.
- Question: What is the framework agreement reached between China and the US?
- Answer: High-ranking economic officials from China and the US reached a framework for a trade deal, setting the stage for Presidents Trump and Xi Jinping to finalize it during an upcoming meeting in South Korea.
- Question: How is the Mexican peso supported in this market context?
- Answer: The Mexican peso benefits from carry trade strategies, as it is considered one of the last high-yield stories among liquid emerging markets.
- Question: What factors limited the peso’s advance despite its gains?
- Answer: Uncertainty surrounding ongoing trade tensions with the US and extended negotiation periods for pending trade issues with Washington.
- Question: What is the technical outlook for the Mexican peso according to analysts?
- Answer: Analysts observe a sideways and slightly positive trend for the Mexican peso, with key price levels to watch being the 50-day moving average at 18.50 units and the 18.30 units level.
