This month, the USD/MXN rate has continued to fall as investors await Banxico’s interest rate announcement. On Thursday it was at 18,60, down over 12% since its peak this year.
Banxico interest rate decision
On Thursday, Mexico will publish its latest Consumer Price Index (CPI).
According to economists polled in Reuters, the upcoming July data will show that headline consumer inflation remained unchanged at 0.28% month-over-month.
On an annualized base, the figure has been lowered from 4.32% down to 3.53%. Although this is a positive sign, Mexico’s inflation rate has risen since the beginning of the year.
The core inflation rate, which does not include the volatile prices of food and energy, is forecast to be 4.23%. This represents a slight decrease from last year’s figure of 4.24%.
The Mexican Central Bank will announce its decision on interest rates a few minutes before these numbers are released. The bank is expected to reduce interest rates to 7.75% from the current rate of 8%.
Banxico (as the central bank of Mexico is known) has cut interest rates every month since last May. The central bank has lowered interest rates from 11% to 8%.
Investors are still concerned with the Mexican economy, amid an ongoing trade dispute with Mexico’s top trading partner.
Positively, US and Mexico continue their negotiations, which may lead to an agreement. As with all other countries, Mexican products entering the US are likely to be subjected to a 10% to 15% duty.
Fed Interest Rate Cuts Hope
Investors remain confident about the Federal Reserve’s upcoming rate reductions, which has caused the USD/MXN rate to drop.
As the job market continues to deteriorate, economists anticipate that the bank will begin reducing rates by September.
The report published on Friday shows that only 73k new jobs were created in the US. If this trend continues, then the final number will be less than anticipated once adjustments have been made.
It is highly probable that Fed rates will be cut in the future, as inflation and economic growth are both on the rise. As they increase spending, interest rate reductions lead to increased inflation.
The carry trade will be invalidated by the Federal Reserve and Banxico interest rate reductions. It is when people invest in higher rates of currency by borrowing a lower rate.
USD/MXN Technical Analysis
On the daily chart, the USD/MXN rate is in a downward trend. The rate dropped from 21.3 at its peak to 18.60 today.
It has also plunged below the 50% Fibonacci Retracement level. The pair has fallen below 50% Fibonacci retracement.
The pair will likely fall further as the sellers aim to reach the level of 61.8% at 18,20.
The post USD/MXN Forecast ahead of Banxico Decision, Mexico Inflation Data may be updated as new information unfolds
