USD/MXN rises to 19.50, remain in recent range

• A stronger US Dollar against Emerging market currencies boosted USD/MXN to highest since Wednesday. 
• Bank of Mexico Board meeting on Thursday: rate cut expected. 

The USD/MXN pair rose to 19.50 during the American session but it failed to break higher and pulled back. As of writing trades at 19.46 modestly higher for the day, holding a short-term bullish bias but limited under 19.50. Over the last ten days, USD/MXN has been moving in a range between the critical support of 19.30 and the resistance of 19.50. 

The key event ahead in Mexico is the Banxico meeting. After the rate cut from the Federal Reserve, a majority of analyst expects the Mexican central bank to do the same. The cut would bring the rate from 8.0% to 7.75%. With the slowdown in inflation, the appreciation of the MXN, and the stagnation of the economy, a more aggressive move from Banxico should not be ruled out. 

On a wider perspective, Luis Hurtado, analyst at CIBC, points out the Mexican Peso has gained some ground since late August as China and the US announced a resumption of trade negotiations in October with a conciliatory tone resurfacing over the last few days. “Although the news has ignited a global risk-on sentiment and favours tactical short USDMXN positions, we maintain a high level of caution against this stance. Internal and external risks including lower GDP growth prospects, optimistic 2020 Budget assumptions, the pending USMCA ratification, the start of the US presidential race, Brexit, and the still uncertain US-China trade feud, make the MXN a risky bet for the rest of the year.” 

They keep a 19.9 year-end forecast and see two additional 25bps rate cuts for the remainder of 2019. For the second quarter of 2020 they expect USD/MXN to trade at 20.4.

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