Banxico rate cut: Can USD/MXN maintain recent support?

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US Dollar vs Mexican Peso slides 0.53%

Highlights

Banxico cut its benchmark rate by 25 basis points to 6.25%, diminishing the peso's yield advantage compared to the US dollar.
Bank of Mexico leadership remains divided, with Deputy Governor Heath condemning the rate cut and raising concerns about inflation management.
USD/MXN trades with short-term bearish momentum below key moving averages, with expected range Mex$18.4278 to Mex$18.613 and higher risk of further declines.

Reduced peso yield premium and policy split as Banxico cuts rates

Mexico's central bank, Banxico, recently cut its benchmark interest rate by 25 basis points to 6.25%, narrowing the yield differential with the US and reducing the peso's attractiveness to investors. This move came as the Federal Reserve maintained a hawkish stance, keeping its rate at 4.00% and signaling potential further increases, a divergence that has continued to favor dollar inflows according to Equiti. Internal tension was highlighted when Bank of Mexico Deputy Governor Jonathan Heath publicly criticized the rate cut on November 12, raising questions about the central bank's approach to inflation risks. On November 13, USD/MXN saw brief peso strength after weaker-than-expected US PPI data, though the effect proved short-lived, as reported by FXStreet.

Downward momentum affirmed as bears dominate below key resistance

Technically, USD/MXN remains below both the 20- and 50-period moving averages on the H1 chart, while holding above the 200-period daily moving average. The Ichimoku Kijun line at Mex$18.5799 stands as immediate resistance. The daily support is located at Mex$18.4278. Momentum readings remain negative: MACD and ADX each present a sell bias, and Bull/Bear Power at -0.0204 confirms sellers are in control. RSI and Stochastic RSI each register neutral, while Commodity Channel Index is in its oversold zone, indicating potential for a rebound if selling exhausts. Most momentum and oscillator signals are in alignment with continued downward intraday pressure, with only the CCI suggesting possible technical support.

Further losses remain likely as range-bound demand is subdued

Over the next two to three trading days, USD/MXN is expected to fluctuate between Mex$18.4278 and Mex$18.613 in a relatively contained volatility band. The baseline scenario envisions range-bound trading, with the probability of an immediate upward move rated as very low. Further declines remain more likely unless price action breaks above resistance at Mex$18.5799, which would open the door to a potential rebound, while a move below Mex$18.4278 would signal an extension of the current bearish momentum.

Viktoras Karapetjanc, analyst at Traders Union, sees the recent Banxico rate cut as a key driver of the peso’s current weakness. He notes that the policy divergence with the Federal Reserve has increased, boosting dollar demand. Short-term technical readings point to continued downward pressure, despite a potential for a rebound if sellers step back. Karapetjanc believes the peso faces strong headwinds in the near term. "As long as the Fed stays hawkish and Banxico backs off, the odds favor more weakness for MXN in the days ahead."

Earlier, analysts noted that monetary policy divergence and firm technical momentum had pointed toward further upside in USD/MXN. The current context, however, highlights how recent shifts in both central bank policy and technical indicators have introduced increased downside risk, making a break below Mex$18.4278 a critical area for bears to watch in the near term.

Source of Data: USD Price Analysis by TU

The analysis is based on a proprietary model combining technical, on-chain, and expert data. Not investment advice. See methodology

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