Is the USD/MXN a buy after the Bank of Mexico rate decision?

August 10, 2023 11:39 PM PDT | By Invezz

Is the USD/MXN a buy after the Bank of Mexico rate decision? — Image source: Invezz

Mexico central bank decision

The USD/MXN pair reacted mildly to the latest Mexico interest rate decision. In its meeting on Thursday, the country’s central bank decided to leave rates unchanged at 11.25% in line with what analysts were expecting.

The Mexican central bank has held interest rates unchanged at this level in the past four straight meetings. Like other banks, it hiked rates aggressively in a bid to fight the elevated consumer inflation. It pushed rates from a low of 4% in May 2021 to 11.25%.

In its accompanying statement, the Mexican central bank hinted that rates will need to stay at this elevated level for a while. It agreed that the inflationary outlook was still “very complex”. The bank said:

“In order to achieve an orderly and sustained convergence of headline inflation to the 3% target, (the board) considers that it will be necessary to maintain the reference rate at its current level for an extended period,”

The USD/MXN exchange rate has been in a deep downward trend in the past few months. It has crashed by more than 22% from its highest point in March 22nd, making the Mexican peso one of the best-performing currencies this year.

The forex pair also reacted mildly to the latest US consumer price index (CPI) data. In its report, the Bureau of Labor Statistics (BLS) showed that the headline inflation rose to 3.2% in July, lower than the expected 3.3%. Core inflation dropped to 4.7%. Therefore, the Federal Reserve will likely hike interest rates by another 0.25%.

USD/MXN technical analysis

USD/MXN chart by TradingView

The USD to MXN pair has been in a strong downward trend in the past few months. Along the way, it has formed a descending channel shown in black. This channel connects the highest and lowest levels since September last year.

The pair has dropped below the 50-period exponential moving average while the Relative Strength Index has dropped above the neutral point. Therefore, the pair will likely resume the bearish trend as sellers target the lower side of the channel at 16.61.

The post Is the USD/MXN a buy after the Bank of Mexico rate decision? appeared first on Invezz.

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