Mexican Peso Dips Further After Banxico’s Dovish Hold, USD/MXN Rallies

The Mexican Peso (MXN) extended its losses against the US Dollar (USD) after the Bank of Mexico (Banxico) surprised markets by keeping interest rates unchanged, despite hinting at potential future easing. This decision, coupled with ongoing political uncertainty, pushed the USD/MXN pair higher to 18.39, a gain of 0.38%.

Market Drivers: Banxico’s Cautious Approach and Political Risks

  • Banxico’s Dovish Hold: While Banxico held rates steady at 11.00%, the accompanying statement acknowledged recent market volatility due to “idiosyncratic factors” and indicated a possibility of future rate adjustments if the disinflationary process continues. However, the central bank failed to address the underlying political risks that contributed to the Peso’s recent weakness.
  • Political Uncertainty Persists: Concerns about the ruling party’s majority in Congress and potential threats to the rule of law are still weighing on investor sentiment towards the MXN.
  • Strong Economic Data: Despite the Peso’s weakness, recent economic data from Mexico has been positive, with the unemployment rate falling below expectations and a surprising trade surplus.

Mixed US Data and Fed Expectations:

Across the border, mixed US economic data has kept the US Dollar on a volatile path. While the final Q1 GDP exceeded expectations and jobless claims declined, the Fed’s hawkish stance and hints of further rate hikes have fueled uncertainty about the Greenback’s future direction.

Technical Analysis: USD/MXN Uptrend Continues, Eyes Key Resistance Levels

The USD/MXN pair remains in an uptrend, with the RSI indicating bullish momentum. The pair is currently trading above the 18.30 level and could target the year-to-date (YTD) high of 18.99 if it breaks above the psychological 18.50 mark. Further resistance levels lie at 19.23 and 19.50.

On the downside, support can be found at the April 19 high of 18.15, followed by 18.00. If these levels are breached, the 50-day and 200-day SMAs at 17.37 and 17.23, respectively, could provide additional support.