Mexican Peso carry cushion thins as USD/MXN breaks 100-day SMA

USD/MXN clears 100-day SMA as Peso losses reach third day.
Fed hike narrows Mexico-US rate advantage to 2.50%.
Banxico hold expectations and hawkish Fed rhetoric favor Greenback.

The Mexican Peso extended its losses for the third straight trading session, down over 0.43% as investors reduce their exposure to the Mexican currency following last week’s Fed decision to raise rates. At the time of writing, the USD/MXN trades at 17.29, clearing the 100-day Simple Moving Average (SMA) at 17.26.

Narrower rate differential, soft retail sales pressure the Mexican Peso

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

Last Wednesday, the Federal Reserve increased the Fed funds rate by 25 basis points to the 3.75-4% range, while rates in Mexico remained anchored at 6.50% as the Bank of Mexico (Banxico) finished its easing cycle. Therefore, the interest rate differential between Mexico and the US has narrowed to 2.50% in favor of the Mexican Peso, its lowest level since 2015.

The 6.50% interest rate differential reached in February 2023 favoured the Mexican Peso, which fell to its lowest level as USD/MXN hit its April 2020 high of 25.78. After this, the exotic pair reversed course, falling to its lowest level in almost nine years in April 2024 at 16.26.

Aside from this, data from Mexico showed that August’s Retail Sales improved from a -0.2% MoM contraction to -0.1% but missed estimates of a 0.2% expansion. In the twelve months to August, it decelerated from 2.9% to 1.8%.

In the meantime, hopes for an end to hostilities in the Middle East shifted market sentiment, but the Mexican Peso failed to gain traction, as Banxico is expected to hold rates unchanged at the September 24 meeting. Additionally, hawkish commentary by Fed officials is setting the stage for another rate increase, if not by October, then by the December meeting, with odds standing at 90%, according to Prime Terminal.

Richmond Fed President Thomas Barkin said inflation would take time to ease and more rate hikes might be needed to reach the 2% goal. Boston Fed President Susan Collins supported a hike; warning of high inflation risks and a greater chance inflation stays above 2%.

Up next, the Mexican economic docket will feature the Banxico Interest Rate Decision. In the US, Flash PMIs, jobs data, consumer sentiment and Fed speaking would be the catalysts for the USD/MXN pair.

USD/MXN Price Forecast: Technical outlook

Chart Analysis USD/MXN — USD/MXN daily chart

In the daily chart, USD/MXN trades at 17.2914, extending its recovery above the latest reading of the 50/100/200-day simple moving average cluster at 17.1558, which now acts as underlying support and tilts the near-term bias bullish. Price is still well below the two descending resistance trend lines drawn from 18.1651 and 21.0808, suggesting the broader downtrend remains intact even as the pair rebounds. The Relative Strength Index (14) at 65.1 sits in bullish territory but shy of overbought, hinting that upside momentum is strong yet not extreme.

On the topside, initial resistance is seen near the nearer downward trend-line reference at 18.1651, ahead of the higher structural barrier around 21.0808, where prior selling pressure originated. On the downside, immediate support is provided by the multi-period simple moving average cluster at 17.1558, with a stronger horizontal floor emerging at 16.8866; as long as USD/MXN holds above these levels, pullbacks are likely to be treated as corrective within the current bullish phase.

(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.

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