USD/MXN up more than 1% ahead of state elections

The Mexican peso is having the worst day in weeks against the US dollar. MXN and ZAR are the worst performers on Tuesday. Uncertainties ahead of Sunday’s elections in the state of Mexico weight on the peso. 

USD/MXN rose the most since May 8. It climbed from 18.45 to 18.69, reaching the highest level in a week. The pair moved further away from the multi-month low it reached on Friday at 18.33. 

Rebounding from key support

A few days ago the pair was testing a key support. It failed to consolidate under 18.45 and then stabilized around 18.50. Today’s rally could open the doors to a more significant rise of the US dollar. The main trend continues to favor the Mexican peso, but at current levels and particularly after being unable to hold under 18.45, the pair could rise to test the key resistance area at 18.90. Above that zone, the next resistance is seen at 19.20/25. 

The upside bias in the short-term is support by a stronger US dollar against emerging market currencies and by a weak peso. 

Volatility over the next days could rise taking into account the events ahead: NFP in the US and in Mexico, the minutes and the inflation report from Banxico, before Sunday’s elections. 

Today the Governor of the Bank of Mexico, Agustin Carsten said that the interest rate hikes should not affect growth expectations. He also mentioned that there is no conflict between aiming for the inflation target and growth. The central bank has been rising rates, to a 9-year high at 6.75% as the CPI index reached the highest since 2009, above 6%.