USD/MXN Outlook: Mexican Peso Maintains Bearish Bias Ahead of Banxico Decision

USD/MXN has started to post a gain of around 0.7% in favor of the U.S. dollar, mainly as the market positions ahead of the Bank of Mexico’s upcoming monetary policy decision. In this context, the Mexican peso is showing signs of weakness, as expectations are that the low-rate policy will continue, which could become a key factor for the U.S. dollar to gain ground in the short term.

Banxico Decision Day Arrives

Today, May 15, around 1:00 p.m. (Mexico time), the Bank of Mexico will announce its latest interest rate decision. The market expects a 50-basis point cut, which would lower the benchmark rate from 9% to 8.5%.

This expectation is supported by declining inflation, which has been approaching the 3% target, as well as signs of economic slowdown in recent months. The central bank has previously indicated that a weakening inflation trend, combined with a less dynamic economic environment, makes it necessary to accelerate rate cuts as part of its monetary strategy.

Given this scenario, it’s important to highlight that the rate differential between Banxico and the Federal Reserve could become a key catalyst for USD/MXN in the coming weeks. While Mexico’s rate is expected to drop to 8.5%, the Fed is expected to maintain its 4.5% rate, as it has done in recent meetings.

Source: Trading Economics

However, it should also be noted that in the U.S., the yield curve has flattened, reflecting the Fed’s neutral stance, whereas in Mexico, the bias remains decidedly dovish, due to a more accommodative policy approach.

This difference in outlook could prove decisive. Even though Mexico still offers a higher rate, another rate cut would reinforce the view of a declining trend, making Mexican bonds less attractive. Meanwhile, although the U.S. rate is lower, its more hawkish tone could boost demand for U.S. Treasuries, which are considered less risky. This consistent demand for dollar-denominated assets could result in sustained buying pressure on USD/MXN over the medium to long term.

USD/MXN Technical Outlook

Source: StoneX, Tradingview

• Persistent Downtrend: Since April 9, a clear downtrend has been in place, with price trading below the 20 pesos per dollar level. However, this trend has recently entered a consolidation phase near 19.50, just ahead of Banxico’s announcement. If this neutral pattern continues, we could see a pause in the decline, potentially leading to sideways movement in the short term. Still, this structure remains the dominant technical formation.

   

• MACD: The MACD histogram has been hovering around the neutral 0 line for several sessions, indicating that momentum from the moving averages has balanced out. If this condition persists, it would reinforce a scenario of indecision in price direction over the coming days.

   

• RSI: The RSI line is showing higher levels, while the price has recorded lower lows, forming a bullish divergence. This suggests that price may have found key support, opening the door to short-term bullish corrections.

   

  Key Levels to Watch:

   

• 20.00 – Key Resistance: A psychological level aligned with the 200-period simple moving average. A move toward this zone could break the current downtrend and trigger a new bullish impulse.

   

• 19.50 – Nearby Barrier: A recent consolidation zone. This level could act as a pivot point for potential upward corrections in the short term.

   

• 19.12 – Key Support: The lowest level reached in September 2024. A drop toward this area could reignite the bearish bias and extend the ongoing downward trend.

Written by Julian Pineda, CFA – Market Analyst

Follow him at: @julianpineda25