Mexican Peso pressured as Banxico decision looms

• Mexican Peso dips, USD/MXN rises 0.12% as market eyes key economic data and Banxico rate decision.
• Anticipated April inflation drop may prompt Banxico to consider cutting rates from 11.00% to 10.75%.
• US Fed officials, including Susan Collins and Neel Kashkari, urge caution in rate policy, impacting cross-border sentiment.

The Mexican Peso remains on the defensive against the US Dollar on Wednesday as investors brace for the Bank of Mexico (Banxico) monetary policy decision on Thursday. Before that, April's inflation in Mexico is expected to dip in headline and core figures, which could weigh on the central bank's decision. The USD/MXN trades at 16.91, gains 0.12%.

Data revealed during the week suggests that Mexico's economy remains solid. This could prompt Banxico's Governing Council members to evaluate the chance of slashing rates from around 11.00% to 10.75% at the next meeting. Nevertheless, market participants expect Banxico to remain on hold, with Bank of America's analysts foreseeing at least four more rate cuts, which could drive the main reference interest rate to 10.00% in 2024.

Elsewhere, Federal Reserve (Fed) officials continued to grab headlines across the border. Boston Fed President Susan Collins said she expects demand to slow down to bring inflation to 2%, adding that there are risks of cutting rates "too soon." She said that the current policy is well-positioned and that it is "moderately restrictive."

On Tuesday, Minnesota Fed President Neel Kashkari said that rates would stay put for an extended period, adding that if rates need to be raised, they will do so.

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%.
• Most bank analysts predict that Banxico will keep interest rates steady with a unanimous decision expected from the Governing Council. However, future meetings are anticipated to be more contentious, potentially leading to divided votes. This expectation arises from comments by two Deputy Governors, Irene Espinosa and Jonathan Heath, who have stated that inflation is still elevated, necessitating that interest rates stay at higher levels.
• The softer-than-expected US jobs data has heightened the likelihood that the Fed may reduce interest rates later in the year. April,Nonfarm Payrolls showed an addition of only 175,000 workers, falling short of expectations and significantly below March's revised figure of 315,000.
• Fed officials acknowledged that risks to achieving its dual mandate on employment and inflation "moved toward better balance over the past year," which signals that if labor market data is weak, it 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 86%, versus 55% ahead of last week'sFOMC decision.

Technical analysis: Mexican Peso treads water as USD/MXN clings to 16.90

The USD/MXN downtrend remains in place, as stir resistance lies above the current exchange rate. Even though the Relative Strength Index (RSI) suggests that buyers are gathering momentum, they must clear key supply zones before the pair turns bullish.

The first resistance would be the 100-day Simple Moving Average (SMA) at 16.93, followed by the 17.00 mark. Once cleared, the next supply level 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 16.80, that could pave the way to challenge the 2023 low of 16.62, followed by the current year-to-date low of 16.25.