USD/MXN price forecast ahead of Banxico rate decision

The Mexican peso will be in the spotlight as the Banxico delivers its interest rate decision. The USD/MXN pair has risen to a high of 20.50 even as most analysts expect another rate hike. It has risen by 3.75% from its lowest level this month. 

Banxico interest rate decision

The Banxico will conclude its two-day meeting on Thursday and deliver its interest rate decision. Analysts believe that the bank will continue with its aggressive policy it started last year as it battles the rising inflation.

A Reuters poll of economists found that most of them expect that Banxico will hike interest rates by 0.50% and push it to 7%. The bank has been raising interest rates since June last year. It has pushed them up by 0.25% in all months since then.

Analysts believe that the bank will match the Fed throughout the whole cycle in order to put the USD/MXN stable.

The Banxico meeting comes at an important time for the Mexican economy. For one, the country’s president has announced a plan to fight inflation through price controls. He brokered a deal with key producers to ensure stable prices for 24 important goods. Analysts believe that this measure will provide some short-term relief.

Ahead of the Banxico decision, analysts at ING said that they expect that the USD/MXN will remain in this range for a while. They wrote:

“And our baseline scenario remains one of USD/MXN hovering around the 20.50 this year. But anything less than a 50bp hike from Banxico today would be a shock.”

The USD/MXN is also rising because of the strong US dollar. The dollar index continued climbing today after the strong American consumer inflation data.

USD/MXN forecast

The USD/MXN pair inched upwards ahead of the upcoming Mexico interest rate decision. It is trading at 20.44, which is higher than this month’s low. The pair has moved slightly below the lower side of the ascending channel. At the same time, the Relative Strength Index (RSI) has been rising and is a bit above the 50 level.

Therefore, there is a likelihood that the price will likely keep rising as bulls target the key resistance level at 21.0. A move below the support at 20 will invalidate the bullish view.