Mexican Peso breaks higher on Monday as rate cut bets mix with seasonal flows

• The Mexican Peso found fresh gains against the US Dollar on Monday.
• Mexican inflation is expected to ease sharply, propping up Banxico cut expectations.
• Seasonal flows typically bolster the Mexican Peso at the tail end of the first quarter.

The Mexican Peso (MXN) gained ground against the US Dollar (USD) on Monday as counter-balanced rate cut expectations push the USD/MXN pair further down the charts. Common seasonal flows see bullish momentum leak into the Mexican Peso during the first quarter, and markets are forecasting a tumble in Mexican inflation.

Mexico is broadly expected to see further rate cuts from the Banco de México, aka Banxico. Mexico’s main reference rate has been held at record highs of 11.25% since April of 2023. US labor figures are also in the mix, with Friday’s Nonfarm Payrolls (NFP) in the barrel. Hopes of market rate cuts from the Federal Reserve (Fed) are also weighing on Monday market action.

Daily digest market movers: Uptick in Banxico rate cut bets push Peso to six-week highs

• Mexico’s inflation print due on Thursday is expected to print a continued decline in Mexican price growth, forecast to print at 0.12% for February versus the previous 0.89%.
• January’s 0.89% Mexico inflation print was a 22-month high.
• This week’s US labor figures kick off with Wednesday’s ADP Employment Change for February, forecast to jump to 150K from the previous 107K.
• Fed Chairman Jerome Powell due to testify before the Financial Services Committee about the Semi-Annual Monetary Policy Report on Wednesday and Thursday.
• Friday’s February US NFP is expected to fall back to 200K from the previous 353K, and investors will be keeping a close eye on revisions to previous prints.
• Tuesday will kick off the US weekly data docket with ISM Services Purchasing Managers Index (PMI) figures for February forecast to tick down to 53.0 from 53.4.
• The Mexican Peso typically finds bullish interest heading into the second quarter, according to the Moore Research Center (MRCI).
• MRCI: Mexican Peso has closed higher from February 28 to April 4 about 93% of the time over the past 15 years.

Technical analysis: USD/MXN drops into new lows as Peso finds bullish bids

The Mexican Peso (MXN) is climbing on Monday, driving the USD/MXN pair down below the 17.00 handle for the first time since mid-January. The pair is down nine-tenths of a percent from last week’s peak bids near 17.12.

USD/MXN is on pace to close in the red for a third consecutive trading day, and bids are tumbling into chart territory last seen in January. 2024’s technical floor sits at January’s swing low into the 16.80 handle, and the pair continues to drop away from the 200-day Simple Moving Average (SMA) at 17.25.

USD/MXN hourly chart

USD/MXN daily chart