Response of the USD/MXN exchange rate to macroeconomic data

Abstract

PURPOSE: The study aims to demonstrate the different roles of national and American macroeconomic variables as the determinants of short-term responses of the USD/MXN exchange rate.

DESIGN/METHODOLOGY/APPROACH: The study has employed regression analysis and the statistical analysis technique, within the framework of which the linear regression model has been used with the GARCH process for the random element. The model parameters have been estimated based on 30-minute data concerning currency exchange rates of three currency pairs subjected to analysis. The estimation of parameters has been conducted in the Stata 15 program. The currency exchange data were obtained from the Meta Trader 4 electronic trade platform. The study has employed the macroeconomic calendar of Investing.com, a global financial platform recognized by the world's investors. The econometric analysis has covered the period from January 2012 to December 2018. The series involved 185518 observations for the USD/MXN currency pair.

FINDINGS: The exchange rate of the USD/MXN currency pair responds more profoundly to US macroeconomic data than to national economic data, however with the proviso that this applies exclusively to some critical data, in particular, non-farm payrolls and core CPI.

PRACTICAL IMPLICATIONS: The study results have a cognitive as well as an application dimension. As regards the mental size, the article may be a source of knowledge on the Forex market and the determinants of shaping the USD/MXN exchange rate. As for the application dimension, the study results may be helpful for currency market players. The study may be addressed to investors who conduct transactions involving the USD/MXN currency pair. The proper identification of the currency exchange response translates into investment success.

ORIGINALITY/VALUE: To date, there have been no attempts to study the impact of 15 types of US macroeconomic data and 5 Mexican pieces of macroeconomic data within the M30 interval. The author believes that the conducted study will assist in making decisions by Forex market investors involved in USD/MXN currency pair investing.