Mexican Peso gains despite Moody's negative outlook

• Mexican Peso appreciates and shrugs off bad credit outlook review, strong US data.
• Moody's revises Mexico's credit outlook to negative, citing concerns over judicial changes impacting economic stability.
• Peso strengthens in spite of Banxico's rate cut with inflation expectations remaining above target.

The Mexican Peso recovered some ground against the US Dollar during the North American session, shrugging off Moody's adjustment on Mexico's credit outlook and upbeat US Retail Sales data. At the time of writing, the USD/MXN trades at 20.34, down by 0.24%.

Due to recent constitutional changes, Moody's Ratings changed the Mexico's credit outlook from stable to negative.

"The constitutional overhaul risks eroding checks and balances of the country's judiciary system, with potential negative impact to Mexico's economic and fiscal strength," Moody's said in a statement Thursday.

Other ratings agencies, like Fitch and S&P Global, kept Mexico's creditworthiness stable. Fitch Ratings assigns Mexico BBB-, the lowest level above junk, while S&P Global Ratings has it a notch higher.

In the meantime, the Minister of Finance, Rogelio Ramirez de la O, presented the 2025 economic package at the Chamber of Deputies. The package projections hint that the economy will grow by 2% to 3%, and the fiscal deficit will be 3.9% of the Gross Domestic Product (GDP) for 2025.

The Peso has extended its gains to three days even though the Bank of Mexico (Banxico) decided to lower borrowing costs to 10.25% as expected despite recognizing that inflation risks are tilted to the upside.

Banxico expects headline inflation to end 2024 at 4.7%, up from 4.3% in the previous forecasts and well above the 3% goal.

In addition, October's US Retail Sales, revealed by the Bureau of Labor Statistics (BLS), crushed estimates. Other data revealed by the Federal Reserve (Fed) showed that Industrial Production for October improved but remained in contractionary territory.

Meanwhile, Fed officials continued to make news. The Boston Fed's Susan Collins reiterated Fed Chair Jerome Powell's words from Thursday about the Fed not needing to rush rate cuts. Collins said, "I don't see a big urgency to lower rates, but I want to preserve a healthy economy."

Daily digest market movers: Mexican Peso bolstered by a soft US Dollar

• A soft US Dollar undermines the USD/MXN. The US Dollar Index (DXY), which tracks the performance of the Greenback against six currencies, dropped 0.24% to 106.61.
• Banxico's Governing Council voted unanimously to lower borrowing costs from 10.50% to 10.25%, as expected. Governors added that although inflation remains high and requires a restrictive policy, the disinflation process "implies that it's adequate to reduce the level of monetary policy restriction."
• Officials expect inflation to converge to the 3% goal by the last quarter of 2025.
• US Retail Sales for October rose by 0.4% MoM, exceeding forecasts of 0.3% but missing September's 0.8% increase. Yearly, figures grew by 2.8%, up from 2%.
• Industrial Production for the same period, shrank -0.3% as foreseen, though improved from -0.5% in September.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 24 bps of Fed easing by the end of 2024.

USD/MXN technical outlook: Mexican Peso steadies as USD/MXN drops below 20.40

The USD/MXN upward bias remains, although the Peso has gained some ground. For a bearish continuation, sellers must push the exchange rate below 20.00. In that outcome, bears could challenge the 50-day Simple Moving Average (SMA) to 19.74, followed by the psychological 19.50.

Conversely, if USD/MXN resumes its uptrend and buyers regain 20.50, it will expose the current week's peak at 20.69. Once surpassed, the year-to-date (YTD) high of 20.80 emerges as the next ceiling level before testing 21.00. A breach of the latter and the March 8, 2022, peak at 21.46 would emerge as the next resistance.

Oscillators like the Relative Strength Index (RSI) are bullish, suggesting that further upside in the USD/MXN is projected.