USD/MXN advanced past the 20-day Exponential Moving Average (EMA) spurred by a risk-off impulse, as US banking sector woes reignited as First Republic Bank stock sank in Tuesday’s session. That said, outflows from the emerging market currency seeking safety moved to the US Dollar (USD). At the time of writing, the USD/MXN is trading at 18.1059, shy of the 20-day EMA.

Positive US economic data and Banxico’s hints of policy changes support USD/MXN

US equities are seesawing between gains and losses as tech companies reported earnings that exceeded estimates. However, bank crisis jitters in the US keep sentiment fragile. US economic data, namely Durable Good Orders for March, jumped by 3.2% MoM, exceeding estimates of 0.7%. Excluding transports, figures advance 0.3% MoM, above forecasts of -0.2%.

Even though risk appetite improved, as shown by the global equity markets, flows toward safety bolstered the USD/MXN. In addition, recent comments from the Bank of Mexico (Banxico’s) Governor Victoria Rodriguez Ceja suggest that Banxico could pause the tightening cycle. She said, “We will be evaluating in the next decision, on May 18, these factors and will be discussing whether it’s the moment to stop the increase in rates. We still have to have the discussion with the members of the board.”

Lately, inflation in Mexico for mid-April was reported at 6.24% YoY, below 6.52% in March, while Core dropped from 8.03% YoY in mid-March to 7.75%. The market is pricing that Banxico will hold rates unchanged for about six months before cutting 175 bps in the subsequent semester.

Given that central banks could diverge in the near term, with the Federal Reserve hiking rates and Banxico’s pausing, further upside in the USD/MXN is expected.