USD/MXN extends gains above 17.7000, Banxico rate decision eyed

• USD/MXN continues to strengthen due to market caution on the Fed’s interest rate trajectory.
• Fed’s hawkish stance is reinforcing the bullish momentum of the US Dollar.
• Higher US Treasury yields are providing support for the solid Greenback.
• Banxico is expected to maintain its current interest rates at 11.25%.

USD/MXN continues the winning streak that began on Monday, trading higher around 17.7110 during the Asian session on Thursday. The pair experiences upward support due to risk aversion, higher US Treasury yields, and economic data.

The US Dollar Index (DXY) extends its gains at its highest levels since December, hovering around 106.70 by the press time. The DXY is bolstered by solid macroeconomic data from the United States (US). US Dollar’s (USD) strength is attributed to the positive performance of US Treasury yields over an impending US government shutdown.

The yield on the 10-year US Treasury note has reached record highs, standing at 4.61% at the time of writing.

The bullish momentum of the USD is being strengthened by the hawkish comments from Federal Reserve (Fed) board members. Neel Kashkari, President of the Minneapolis Federal Reserve, recently made statements indicating the potential for further interest rate hikes in the future.

Additionally, Kashkari suggested that the option of keeping interest rates unchanged at their current levels remains open, especially if any potential rate cuts are postponed even further. These remarks from Fed officials are contributing to the upward trajectory of the Greenback.

In August, US Durable Goods Orders rebounded with a 0.2% increase, a notable turnaround from the previous month's 5.6% decline. This performance exceeded market expectations, which had anticipated a 0.5% decline.

Regarding EIA Crude Oil Stocks Change data for the week ending September 22, showing a decrease with a reading of -2.17 million barrels, compared to the previous reading of -2.135 million barrels. This index was expected to be published at -0.32 million barrels figures.

Mexico's President, Andres Manuel Lopez Obrador, has acknowledged the effective performance of the Bank of Mexico (Banxico) as inflation rates decrease. However, the President has also emphasized the importance of Banxico focusing more on fostering economic development.

If the trend of declining inflation persists, Banxico might contemplate making changes to its monetary policy. These potential adjustments could have repercussions on the value of the Mexican Peso against the US Dollar.

Market participants will likely watch Mexico’s Jobless Rate for August and the Bank of Mexico (Banxico) interest rate decision on Thursday. On the US docket, the Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation will be eyed on Friday, which is expected to reduce from 4.2% to 3.9%.