Mexican Peso Declines Amid Expectations of Banxico Rate Cuts
- USD/MXN Climbs Over 1.40% as Banxico Meeting Approaches
- Bloomberg Survey: Analysts Expect Rate Reduction at September 26 Meeting
The Mexican Peso faced a decline against the US Dollar, with the USD/MXN pair appreciating by over 1.40% on Wednesday. This surge is attributed to expectations of further easing by the Bank of Mexico (Banxico) at its upcoming meeting on September 26. The prevailing sentiment in the market has fueled the upward movement in the exotic pair, currently trading at 19.58.
Factors Influencing the Mexican Peso
Economic Data Overview:
While Mexico’s economic calendar was quiet on Wednesday, recent data releases paint a mixed picture of the economy. Economic Activity improved in July, but Retail Sales continued to show negative readings for the third consecutive month.
Inflation Trends:
Monthly and yearly inflation figures for the first half of September cooled, providing a strong case for Banxico to consider a 25 basis points rate cut at its upcoming meeting.
Analyst Expectations:
According to a Bloomberg survey, 20 out of 25 analysts anticipate a rate reduction to 10.50%. One analyst predicts no change, while four expect a 50 basis points cut following the Federal Reserve’s recent actions.
If Banxico proceeds with a rate cut, it could lead to further depreciation of the Peso, potentially pushing the USD/MXN pair towards the psychological level of 20.00.
Insights from Market Experts
Christian Lawrence, senior cross-asset strategist at Rabobank, forecasts bouts of downside for the Peso due to tactical carry trade flows. He anticipates further weakness in the Mexican currency in the coming months, influenced by reforms and US election dynamics.
US Economic Outlook
While the US economy shows signs of slowdown, market participants remain optimistic about a soft-landing scenario. Consumer Sentiment data for September revealed a decline to its lowest level since August 2021, indicating some concerns among consumers.
Market Analysis and Projections
- USD/MXN continues to rally on expectations of Banxico rate cuts and the Dollar’s strength.
- US Dollar Index (DXY) climbs 0.56%, trading at 100.91 against a basket of six peers.
- Swaps markets project a 175 basis points rate cut by Banxico by the end of 2025.
- CME FedWatch Tool shows a 60.8% chance of a 50 basis points rate cut by the Federal Reserve.
Technical Analysis of USD/MXN
The USD/MXN pair maintained its upward trend, reaching a daily high of 19.64 before stabilizing. Bullish momentum is supported by the Relative Strength Index (RSI).
Key resistance levels include 19.61, 20.00, and 20.22, while support levels are at 19.29, 19.08, and 19.06.
Mexican Peso FAQs
- MXN value influenced by economic performance, central bank policy, foreign investment, and remittances.
- Banxico aims to maintain low inflation levels through interest rate adjustments.
- Economic data releases impact MXN valuation, with strong data supporting the Peso.
- MXN thrives in risk-on environments and weakens during market turmoil.