USD/MXN reaches new cycle high by surpassing 17.8000 pending Banxico rate decision

• USD/MXN rebounds to new cycle highs, above 17.8000 due to risk aversion and the strength of the USD.
• The Federal Reserve’s hawkish rhetoric and the impending US government shutdown drove flows into the safety of the USD.
• USD/MXN traders are attentive to Banxico’s monetary policy decision, with estimates of keeping rates at 11.25%.

He Mexican peso (MXN) continues to weaken against US dollar (USD) during the North American session, after reaching a daily low at 17.4748. The general strength of the USD due to risk aversion, due to some factors, supports the USD/MXN, which is trading at 17.7837, although it has reached a new cycle high at 17.8161.

Mexican Peso Weakens as Imminent US Government Shutdown and Federal Reserve’s Hardline Rhetoric Lift US Treasury Bond Yields and USD

Sentiment remains negative, as reflected by the decline in US stocks. A partial US government shutdown looms, while the Federal Reserve’s hawkish rhetoric continues to prop up US Treasury yields and, consequently, the Dollar.

The 10-year US Treasury yield is above 4.63% and has gained nine and a half basis points so far this session, while the Dollar Index (DXY), which tracks a basket of six currencies against the Dollar, reaches annual highs of 106.82, with buyers targeting the high of 107.19 reached on November 30, 2022.

Minnesota Fed President Neil Kashkari said there is a looming risk that interest rates will have to rise, while adding that consumer spending remains strong. Kashkari said that although inflation is moving up, he remains unsure whether the Fed is tight enough.

In terms of data, the US Commerce Department showed that August durable goods orders rose 0.2% month-on-month, beating estimates and falling -5.6% from the previous month. Excluding transportation, orders rose 0.4% month-on-month, above forecasts and above the 0.1% increase in July.

On the Mexican front, the trade balance in August recorded a deficit of -1,377 million dollars in unadjusted terms, while in seasonally adjusted terms it recorded a trade deficit of 131 million dollars, compared to the surplus of 532 million dollars in July.

On the other hand, the Bank of Mexico (Banxico) will publish its monetary policy decision on Thursday, in which the central bank is expected to keep rates unchanged at 11.25%, according to a Reuters poll of 20 analysts. The central bank has kept rates at 11.25% since March 2023 as inflation slows. The latest Consumer Price Index (CPI) report for the first half of September witnessed a drop to 4.4%, its lowest level since March 2021.

USD/MXN Price Analysis: Technical Outlook

The daily chart shows that the pair has extended its gains to a new cycle high, which could open the door for further upside, but buyers need to reclaim the 200-day moving average (DMA) at 17.8511, which could pave the way for further upside. way for a test of 18,0000. Breaking these two levels would put in play a recovery towards the April 5 high at 18.4010, followed by the March 24 daily high at 18.7968.