Mexican Peso post gains as lower US yields revive the carry trade

USD/MXN falls 0.55% after touching a two-day low.
Mexico’s consumer confidence drops to 45.1 in September.
Finance Minister Amador favors fixed-rate, long-term local borrowing.

The Mexican Peso stages a comeback against the US Dollar on Tuesday as the latter weakens amid profit-taking and lower US Treasury yields, with traders awaiting the release of the minutes of the Federal Reserve’s last meeting. The USD/MXN trades at 17.97, down 0.55%.

USD/MXN drops as Dollar profit-taking and upbeat risk sentiment favor the Peso

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

An upbeat market mood supported the emerging-market currency, as USD/MXN hit a two-day low of 17.91, the level last seen on September 29. This pushed the Greenback lower, as the US Dollar Index (DXY), which measures the performance of the American currency against six others, is at 101.84, down 0.25%.

The fall of US Treasury yields boosted the appetite for the Mexican currency, even though Mexico’s Consumer Confidence fell in September, for the first time since May, as revealed by INEGI. The seasonally adjusted indicator fell from 46.3 to 45.1 in September, indicating that Mexican households are trimming durable-goods spending.

Aside from this, the Mexican Finance Minister, Edgar Amador, said that the country will prioritize borrowing in local currency at fixed rates and long maturities to reduce exposure to interest and exchange rates. Speaking to lawmakers, he added that “79% of the debt will be denominated in local currency and mostly at fixed rates and long-term maturities.”

Ahead, Mexico’s economic docket will feature inflation data for September and the release of the Bank of Mexico (Banxico's) last meeting minutes.

In the US, the trade deficit widened in August, as revealed by the Commerce Department. However, market participants are eyeing the release of the FOMC minutes of the September meeting on October 7.

Recently, Federal Reserve officials crossed the wires, with the San Francisco Fed President Mary Daly saying she supported September’s rate hike and that additional rate hikes may be needed, depending on external shocks. Recently, Kansas City Fed Jeffrey Schmid commented that the labor market is solid and that the inflation fight has a “way to go.”

USD/MXN Price Forecast: Technical Outlook

Chart Analysis USD/MXN — USD/MXN daily chart

In the daily chart, USD/MXN trades at 17.9710, maintaining a bullish near-term bias as spot holds well above the triple simple moving average cluster (50, 100, 200) around 17.2570. The pair is also comfortably above the horizontal support at 16.8866, keeping the broader rebound intact, while the Relative Strength Index (14) at 66.4 stays just shy of overbought territory, hinting that upside momentum remains firm but somewhat stretched.

On the topside, the next notable resistance comes from the broader downward trend-line structure, with the latest reference high around 18.1200 acting as the immediate cap for further gains. On the downside, initial support is seen at the triple SMA area near 17.26, ahead of the more significant horizontal floor at 16.89, and only a drop back below these levels would suggest that the current bullish phase is losing traction.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Mexican Peso FAQs

What key factors drive the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

How do decisions of the Banxico impact the Mexican Peso?

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

How does economic data influence the value of the Mexican Peso?

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

How does broader risk sentiment impact the Mexican Peso?

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

Article suivant