USD/MXN keeps falling, moving closer to 19.00

The USD/MXN pair failed earlier today to break and hold on top of 19.20 and turned lower. As of writing, it trades at 19.13, testing Thursday’s low. It holds a bearish tone, as it has been the case over the last three weeks. 

The improvement in risk sentiment across financial markets and a weaker US Dollar pushed USD/MXN to the downside. At the beginning of the month, it was near 20.00, but it turned lower, breaking a week ago the 19.30 barrier, clearing the way to more losses. 

While holding under 19.35, the negative tone is likely to prevail. The next critical support is seen at 19.00/05, a long term uptrend line from 2017 that if broken, could lead to a slide to test the 2019 low at 18.73.  

MXN lower? Banxico to cut further? 

!The MXN’s recent rally in tandem with some improvements on the global trade picture and US official comments on USMCA ratification. Nevertheless, headlines surrounding this topic should continue creating volatility going forward, and we see limited room for a sustained appreciation in the peso from these levels,” explained Luis Hurtado, analysts at CIBC. They maintain their 19.9 USD/MXN year-end forecast, and expect Banxico to cut the overnight rate by 25 bps in November, and by another 25 bps in December.

According to CIBC, the main obstacle preventing Banxico from signaling more aggressive easing was the high core inflation numbers. “However, we expect this to lose relevance as headline inflation drops below target and economic activity indicators suggest a further deceleration in growth.”

More rate cuts from Banxico are widely expecting as inflation continues to slowdown, economic activity stagnates and the Mexican peso remains firm. What is not clear is how fast will it reduce them. Next week, mid-month inflation data for October and August’s economy activity index are due and will offer more information to the Banxico board.