USD/MXN: Recovery from 6-month lows limited by 18.30
- US Dollar recovery against the Mexican peso losses strength near 18.30.
- Mexican peso continues to be among the top performers of 2018.
The Mexican peso is rising on Tuesday versus the US dollar, posting modest gains, after the correction of the greenback lost strength amid risk appetite and higher crude oil prices.
The USD/MXN pair bottomed last weekly at 18.05. Then rebounded and started to move to the upside. Yesterday approached 18.40 before pulling back. As of writing it was trading at 18.28.
The Mexican peso continues to be among the top performers of the year so far supported by NAFTA optimism, higher crude oil prices and high rates from Banxico. The Bank of Mexico will announce on Thursday it decision on interest rates. Most analysts expect no change in the key rate, currently at 7.50%. The rally of the peso and lower inflation removed pressure out of the central bank to keep rising. “Price pressures are easing and activity data are slowing. Given that we have also seen MXN rally around 3.5% against USD since the last meeting on February 8th there is little motivation for Banxico to raise rates at this juncture”, wrote analysts at Rababobank.
If Banxico keeps rates on hold and signals the end of the tightening cycle, would that hurt the peso? It could but even in that case rate differentials will continue to be significant. The main risks for the peso during the second quarter appears to be NAFTA negotiations and the Mexican presidential election (July 1).
USD/MXN Levels to watch
The slide that started in January found support above 18.00. The area between 18.00 and 18.05 is the key support to break in order to open the doors to more losses, with immediate targets at 17.90 and 17.80. In the short-term, a consolidation above 18.30/35 (20-day moving average) could lead to more gains for the US dollar. The next strong barrier might be seen at 18.50/55.