USD/MXN Mexican Peso Under Pressure as US Economic Indicators Strengthen

The Mexican peso kicks off March with uncertainty as February was a negative month for the currency. The resurgence of the US dollar as a safe haven asset weighed down the peso.

The first estimate of US GDP growth for the fourth quarter of 2018 beat expectations and given the lack of details on the US-China trade agreement, the looming Brexit deadline and other risk events the US dollar finished February on a rising trend.

The Mexican peso was pressured by the uncertainty of oil prices given the balance between the OPEC+ and rising US crude production is sensitive to changes in oil stocks or geopolitical disruptions.

Investors continue to follow the PEMEX credit rating as the Mexican government is adamant it can turn around the oil producer. The upside of crude prices has been capped by the rising US production, with the OPEC+ bringing stability through their output limit agreement.

A fall in oil prices would impact PEMEX’s revenues and increase the difficult challenge taken on by the Mexican government.

The strong economic data in the US gave a boost to the dollar ahead of a busy week with plenty of indicators on the menu. US employment data will be the highlight. If the US can string together enough solid data, the Fed could hit the hike button earlier than expected.

The emerging market proxy status of the peso given its high liquidity enhances its attractive to investors looking to diversify their portfolio, but it also makes it more volatile if there is a risk off triggering event.

The macro risks will continue to dominate the foreign exchange market and the peso is extremely sensitive to trade negotiations and oil prices with developments on both fronts next week.

The currency was higher above the 19 pesos price level reaching 19.40 in February. The currency pair trades at 19.30 but could reach over 19.50 by the end of the week if US indicators confirm a stronger than expected economic performance from Mexico’s largest trading partner.

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