Mexican Peso pulls back from rally amid hawkish Fed remarks

• Mexican Peso's rally halts following hawkish comments from Minneapolis Fed President Neel Kashkari.
• Mexico's inflation report and Bank of Mexico's policy decision keep trading cautious; automotive data impresses while consumer confidence dips.
• Analysts expect Banxico to maintain rates for now, foresee rate cuts later this year.

The Mexican Peso erased some of its earlier gains against the US Dollar on Tuesday, snapping four days of consecutive gains. This price action was sponsored by hawkish comments made by Minneapolis Fed President Neel Kashkari. Additionally, traders bracing for the release of Mexico's inflation report and the Bank of Mexico (Banxico) monetary policy decision would keep the exotic pair trading within familiar levels. The USD/MXN exchanged hands at 16.89, up 0.13%.

Mexico's economic docket featured numbers linked to the automobile industry that were better than expected. However, consumer confidence has stalled, according to data revealed by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI).

Meanwhile, most bank analysts estimated Banxico will keep interest rates unchanged with a unanimous vote by the Governing Council. Nevertheless, some expect the following meetings to be live, which could trigger split votes as two Deputy Governors, Irene Espinosa and Jonathan Heath, expressed that inflation remains high and that rates must remain at higher levels.

Bank of America analyst Carlos Capistran expects Mexico's central bank to cut rates by a quarter of a percentage point in August, September, November and December.

Across the border, Federal Reserve (Fed) officials would dominate the economic schedule, which would feature Initial Jobless Claims on Thursday and the release of the University of Michigan Consumer Sentiment survey on Friday.

Neel Kashkari crossed the newswires and said the most likely scenario would be to hold rates flat for an extended period. He added that if needed, the Fed would hike rates, adding that the US economy is in a good place.

Daily digest market movers: Mexican Peso appreciates ahead of busy schedule

• Last week, Banxico's April poll showed that private economists estimate inflation to end the year at 4.2% in 2024, underlying prices at 4.1% and the economy to grow by 2.25%. Regarding the USD/MXN, analysts revised their projections downward from 18.10 to 17.
• Mexico's economic calendar will feature the release of the Consumer Price Index (CPI) for April, estimated at 0.18% MoM, below March's reading. In the twelve months to April, the CPI is foreseen climbing from 4.42% to 4.63%.
• Mexico's Consumer Confidence in April was unchanged at 47.3.
• Auto Exports grew 14.4% YoY in April, crushing the previous reading of 4.9%. Automobile Production increased by 21.7% YoY, which was up from 12.8% in March.
• Softer than expected, US jobs data increased the odds that the Fed might lower rates during the year after Nonfarm Payrolls missed by adding just 175K people to the workforce in April, trailing March's revised 315K figure.
• That data, along with Fed officials acknowledging that risks to achieving its dual mandate on employment and inflation "moved toward better balance over the past year," signals that if labor market data is weak, that could pave the way for cutting rates.
• Data from the futures market see odds for a quarter percentage point Fed rate cut in September at 85%, versus 55% ahead of last week's Federal Open Market Committee (FOMC) decision.

Technical analysis: Mexican Peso on backfoot as USD/MXN aims toward 16.90

The USD/MXN downtrend remains intact, though it seems to bottom out near the 50-day Simple Moving Average (SMA) around 16.80. Worth noting that on Monday, I wrote that sellers were "gathering momentum as shown by the Relative Strength Index (RSI)." Nevertheless, the RSI has shifted bullish, which could pave the way for further upside.

The first resistance would be the 100-day Simple Moving Average (SMA) at 16.94, followed by the 17.00 mark. Once surpassed, the next supply area would be the 200-day Simple Moving Average at 17.17 followed by the January 23 swing high of 17.38 and the year-to-date high of 17.92.

On the other hand, If USD/MXN tumbles below the 50-day Simple Moving Average (SMA) at 16.81, that could pave the way to challenge the 2023 low of 16.62, followed by the current year-to-date (YTD) low of 16.25.