Mexican Peso recovers following Banxico Deputy Governor Heath’s comments

The expectation that interest rates may remain higher for longer – they are already at 11.00% – supports the Mexican Peso because higher interest rates tend to attract greater inflows of foriegn capital. 

Mexican Peso gains a boost from Deputy Governor Heath’s comments 

The Mexican Peso gained a bump on Wednesday after the Deputy Governor of the Banxico suggested interest rates might need to remain high in Mexico in order to combat persistent inflation. He further added that Q1 2024 growth would likely be higher than the 0.1% growth seen in Q4.  

Up until Heath made his views known the Mexican Peso had been trending lower in the majority of its most heavily traded pairs. This was due to a combination of factors, including the decision by the International Monetary Fund (IMF) to downgrade its economic growth forecasts for Mexico in 2024-2025, as well as fading Oil prices – a key export for the country.  

The impact of stubbornly high inflation in the US and recent remarks from the Chairman of the Federal Reserve (Fed), Jerome Powell, that suggest the Fed may not cut interest rates until September (from previous expectations of June), were further factors posited as influencing the Mexican Peso’s reversal in fortunes.

Technical Analysis: USD/MXN reverses trend in the short-term

USD/MXN – the value of one US Dollar in Mexican Pesos – has probably reversed its short-term downtrend. 

The peaks and troughs of price are rising on the 4-hour chart used by many analysts to assess the short-term trend. This suggests the pair is now in an uptrend, favoring bulls. 

USD/MXN 4-hour Chart 

One caveat to the bullish outlook is that the Relative Strength Index (RSI) is pulling back from overbought into neutral territory. Given price is also declining, the two taken together could be signaling the start of a correction. When the RSI moves out of overbought territory it is a signal for short-term time horizon traders to close long positions and open short trades. 

The pair has now almost pulled back to the 50-day Simple Moving Average (SMA) at 16.82, and it is likely to encounter solid support there. Given the dominance of the short-term uptrend there is still the chance price could eventually recover and start going higher again.  

A break above Tuesday’s high at 17.09 would indicate a continuation of the uptrend to the next target, possibly located at 17.17 where the 200-day SMA is situated, followed by resistance from a long-term trendline and resistance level at around 17.37.