- Mexican Peso flatlines as trade war escalation limits risk appetite.
- USD/MXN trades near 20.33 as US-Canada trade tensions overshadow market sentiment.
- Peso struggles despite broad USD weakness with the DXY hitting YTD lows at 103.30.
- Investors await Mexico’s GDP data and US CPI this week amid lingering tariff uncertainty.
The Mexican Peso (MXN) appreciates against the US Dollar (USD) as the latter refreshes year-to-date (YTD) lows against a basket of six currencies, revealed the US Dollar Index (DXY). The de-escalation of the trade war between the United States (US) and Canada, improved market mood, and boosted the Peso. The USD/MXN trades at 20.25, down 0.50%.
Earlier, US President Donald Trump escalated tensions with Canada by imposing additional 25% tariffs on aluminum and steel imports as retaliation for applying duties on electricity imported from Ontario to New York, Michigan and Minnesota.
The Mexican Peso was unfazed by the news, yet it remains trading below the 100-day Simple Moving Average (SMA) at 20.34.
Mexico’s economic docket remained empty with traders bracing for the release of quarterly and annually Aggregate Demand figures for Q4 2024. In the US, job vacancies rose, according to the US Bureau of Labor Statistics (BLS), amid uncertainty on tariffs and aggressive government spending cuts.
Even though the data was supportive of the US Dollar, the DXY prolonged its fall to year-to-date (YTD) lows of 103.30, down 0.55%.
This week, US inflation figures will shed some light on what the Federal Reserve (Fed) might do regarding monetary policy. As of writing, money market futures traders are pricing in 83.5 basis points of easing toward the year’s end.
Daily digest market movers: Mexican Peso hovers around 20.30
- Despite the recent uptick on headline and core prices, Mexico’s Consumer Confidence data and the ongoing disinflation process in Mexico suggest Banco de Mexico (Banxico) could cut interest rates at the upcoming March 27 meeting.
- The US Job Openings and Labor Turnover Survey (JOLTS) report revealed that vacancies increased in January from 7.508 million to 7.740 million, exceeding forecasts of 7.63 million.
- A Reuters poll showed that 70 out of 74 economists say the risk of recession has risen in the US, Canada and Mexico.
- In the boiler room, trade disputes between the US and Mexico remain front and center. If the countries could agree, it would pave the way for a recovery of the Mexican currency. Otherwise, further USD/MXN upside is seen as US tariffs could trigger a recession in Mexico.
USD/MXN technical outlook: Mexican Peso weakens as USD/MXN climbs past 20.30
The USD/MXN consolidated within the 20.20–20.50 range during the last three days with neither buyers nor sellers able to break the range. Momentum hints that further downside is seen in the near term, according to the Relative Strength Index (RSI).
With that said, the USD/MXN’s first support would be 20.20, followed by the 20.00 figure. If surpassed, the next stop would be the 200-day SMA at 19.59. Conversely, if USD/MXN hurdles toward 20.50, the next resistance would be the March 4 swing high at 20.99 and the YTD peak of 21.28.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
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