USD/MXN rises on Tuesday, remains under 19.00 near critical support

• Mexican peso modestly lower versus US dollar on Tuesday. 
• Greenback gains across the board, but remains under 19.00 versus MXN. 

The USD/MXN rose during the American session to 18.92 and then pulled back. As of writing it trades at 18.87, marginally higher for the day as it continues to move in a consolidation range. 

The greenback rose across the board amid a correction and also boosted by US economic data. Commodity and emerging market currencies were affected on Tuesday by risk aversion. Wall Street heads for a negative close, trimming some of yesterday’s gains. 

From a technical perspective, USD/MXN continues to move in a range, with the lower bound at 18.80 working as critical support that if broken should lead to more losses. On the upside, the greenback needs to rise and hold above 19.00 to remove the bearish pressure. 

MXN outlook 

The outlook for the Mexican peso over the next quarter depends on many factors, particularly Banxico’s policy, government fiscal actions, and economic performance. 

“Even though Banxico cut its policy rate during the year, the current 7.25% level is still quite attractive for foreign investors to buy Mexican bonds. The market expects further policy rate cuts during 2020, but the magnitude of those cuts depends on the balance between still weak economic activity and the resilient and uncertain inflation outlook, being influenced by the recent rise in the minimum wage. On the fiscal side, the government provided good signs of discipline and the popularity of AMLO reduces the risk of populist measures that could threaten fiscal stability, although there are risks of lower-than-expected GDP growth in 2020 (market expectation is slightly above 1%), lower revenues with oil production and growing spending demands”, explained analysts at MUFG. 

The balance of risks is in favour of stronger Mexican peso but considering it appreciated excessively during December, there is scope for some depreciation during the first quarter according to MUFG analyst.