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What’s going on with Mexican peso vs. Dollar (USD/MXN)?

What’s going on with Mexican peso vs. Dollar (USD/MXN)?

In the Forex markets, the US dollar (USD) has been climbing against the Mexican peso (MXN), after facing a few minor bumps along the way. 

This upward trajectory is driven by a confluence of factors, including rising US bond yields, apprehensions about China’s property market, and a decline in commodity prices. 

This overall uptrend in USD/MXN continues this week, with the greenback continuing to surge toward its monthly peak against the peso. 

At press time on September 26, the currency pair was standing at 17.5, up 2.1% and 4% on the weekly and monthly charts, respectively. 

USD/MXN 1-week chart. Source: TradingView

What’s driving USD against MXN?

After opening the week higher, the US dollar continued to gain traction for the second consecutive day against the Mexican peso during the early Asian trading hours on Tuesday, September 26.

The winning streak comes primarily because the US Treasury bond yields remain elevated, with the 10-year sitting at 4.51%. 

Apart from this, recent comments by Federal Reserve policymakers hinting at more rate hikes this year also bolstered the greenback. On Tuesday, Minneapolis Fed president Neel Kashkari said he is one of the policymakers seeing the need for at least one more rate hike in 2023 and keeping them high for a while to bring inflation back down to 2%.

“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off.”

– Kashkari said during an event at the Wharton School of Business.

Mexico’s inflation steady but policy changes could pressure MXN

Meanwhile, Mexico’s inflation remained steady at 4.64% in the first half of September, compared to August-end. 

The country’s president Andres Manuel Lopez Obrador praised the central bank’s endeavors in managing inflation but called for a stronger focus on economic development. However, if the inflation rate continues to decelerate, Banxico may have to adjust the monetary policy, which could potentially weigh on MXN. 

USD/MXN technical analysis

Meanwhile, the USD’s recent momentum against MXN is reflected in the technical analysis overview on TradingView

Notably, the summary 1-day gauges on the platform recommend a ‘Buy’ for the USD/MXN pair, based on 13 ‘Buy’ suggestions and just 2 ‘Sell’ signals, while 10 showed ‘Neutral.’

USD/MXN technical analysis overview. Source: TradingView

Moving averages (MAs) are especially bullish on the pair, with as many as 11 ‘Buy’ signals, compared to 2 ‘Sell’ and 1 ‘Neutral.’ 

However, despite its recent victories against the peso, it is important to note that the overall trend for USD/MXN remains negative in 2023, with the pair being down over 10% year-to-date.

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