- USD/MXN remains down around 1% on the week.
- Geopolitical problems in Eastern Europe and the Fed keep riskier assets under pressure.
- Rabobank: Banxico will raise 50 bps and expects bank rates to end around 8% in 2022.
- USD/MXN Price Forecast: Bias to the Downside as a break of 20.1500 is seen, exposing the psychological level of 20.00.
Despite a risk-off mood in financial markets, courtesy of Russia-Ukraine tensions and the Federal Reserve’s hawkish expectations of rate hikes of more than 25 bps, the Mexican peso rally has extended to seven consecutive days. At the time of writing, the USD/MXN It trades at 20.1706, losing 0.53%, reflecting the strength of the peso.
Risk aversion is back. European and US stocks are falling while the dollar is holding up, as shown by the US Dollar Index, which was up 0.28% at 98.701. US Treasury yields are almost flat, as shown by the 10-year Treasury note, which fell one basis point for the first time this week, at 2,366%.
Geopolitical nerves come to the fore
Ukrainian President Zelensky said that the talks with Russia are contentious and complex. At the same time, Russian Foreign Minister Lavrov commented that NATO’s eastward expansion continues regardless of whether a particular nation is a member. Lately, Russian President Vladimir Putin said that he intends to use Russian rubles when selling gas to non-friendly countries, which caused an increase in oil prices, which benefited the prospects of the peso due to the fact that the Mexican economy depends on crude oil exports.
Banxico’s will raise 50 bps – Rabobank
“Banxico will announce its latest decision on the rate on Thursday, March 24, and we expect another 50 bp hike that will take the policy rate to 6.50%. This is what most analysts expect, and the market is fully priced in for a 50bp move.”
Rabobank analysts added that “Last week’s FOMC and the Russian invasion of Ukraine prompted us to revise our forecast to take into account two more 50bp hikes and two more 25bp hikes, raising the policy rate to 8.00.” % At the end of the year”.
Fed speech continues
The US economic agenda featured more speakers from the Fed. Previously, Fed Chairman Powell spoke about digital currencies, leaving aside monetary policy. Meanwhile, Cleveland Fed President Loretta said the Fed would need to make some 50bp moves this year while favoring early rate hikes to better position itself on how the US economy performs in the second half. of 2022. He further added that “I have no concerns that rate increases are going to push the US economy into recession.”
Putting this aside, US new home sales in February rose 0.772 million below the 0.81 million estimate.
USD/MXN Price Forecast: Technical Outlook
In the short term, the USD/MXN is biased to the downside. On its way south, it has broken several support levels, such as the Feb 25 daily low of 20.3117, and at press time, it is approaching the Feb 23 daily low at 20.1558.
If USD/MXN breaks above the latter, the next support for USD/MXN would be 20.00, followed by June 25, 2021 daily low at 19.7049.
Technical levels
Source: Fx Street
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