USD/MXN: Peso sits at a key price ahead of Banxico decision

The USD/MXN exchange rate remained in a consolidation phase on Thursday ahead of the upcoming Banxico interest rate decision. The pair was trading at 17.28, where it has been in the past few days.

Banxico central bank decision

The USD to MXN pair reacted mildly to the dovish decision by the Federal Reserve. In it, the bank decided to leave interest rates unchanged for the third straight meeting. It also pointed to rates moderation in 2024 now that inflation is falling.

The Fed has succeeded in engineering a soft landing for the US economy. Inflation has dropped from 9.1% in 2022 to 3.1% while the labor market is still tight. 

The unemployment rate dropped to 3.7% in November while the economy expanded by 5.2% in the third quarter. As such, it seems like the much-feared recession has been avoided for now.

The next important MXN news will be the upcoming Banxico rates decision scheduled for later Thursday. Like the Federal Reserve, economists see the bank leaving rates intact at 11.25% for the seventh straight meeting.

It will also point to the start of rate cuts in 2024 since inflation has been in a downtrend. The most recent data showed that Mexico’s inflation rose slightly to 4.32%, which was lower than the median estimate of 4.40%.

Like in the US, Mexico’s inflation has retreated from last year’s high of 8.70% and there is a likelihood that the trend will continue. Besides, energy prices in the country are moving downwards.

A rate cut by Banxico will help to supercharge the economy, which is doing modestly well. The most recent data revealed that the economy expanded by 1.1% in the third quarter, helped by more exports to the US and increased consumer spending. 

The country has benefited substantially from the concept of nearshoring, where companies are moving their production there. Indeed, Mexico has overtaken China as the biggest exporter to the US.

USD/MXN technical analysis

USD/MXN chart by TradingView

The USD/MXN pair remained under pressure in the past few weeks after it formed a double-top pattern at 18.48. In technical analysis, a double-top is seen as a bearish sign. The pair has dropped below the 25-day and 50-day Exponential Moving Averages (EMA). 

Most importantly, it is struggling to move below the ascending trendline that connects the lowest swings since August. The Relative Strength Index (RSI) has failed to move above the neutral point of 50.

Therefore, the outlook for the USD to peso will be confirmed if it moves below the ascending trendline. If this happens, the pair will likely drop to the key support at 17.0.