Mexican Peso appreciates as USD/MXN dives on USD weakness
- USD/MXN slips below 17.00 despite a jump in Oil prices.
- Warsh-driven Fed hike bets keep Peso upside limited.
- US jobs data and ISM PMIs drive next catalysts.
The Mexican Peso (MXN) appreciates by about 0.20% against the US Dollar (USD) on Monday, even as risk appetite deteriorated amid the escalation of the US-Iran conflict, which triggered a jump in energy prices. This exerted upward pressure on US bond yields on speculation that the Federal Reserve (Fed) will raise rates. At the time of writing, the USD/MXN pair trades at 16.99 after reaching a daily high of 17.04.
USD/MXN slips despite Iran escalation, Oil jump and Fed hike risks
Developments during the overnight session pushed West Texas Intermediate (WTI), the US Oil benchmark, past the $85.00 threshold, following strikes by the US and Iran. Sentiment soured on the news, but not in the FX space, with most traders punishing the Greenback, as per the US Dollar Index (DXY).
The DXY, which measures the buck’s value against a basket of six currencies, is down 0.25%.
Last week, hawkish remarks by Fed Chair Kevin Warsh weakened the Mexican currency, as USD/MXN rose 0.38%, closing at 17.03 on Friday. This increased bets that the US central bank will raise rates by 25 basis points at the September 16 meeting, according to Prime Terminal data.
The odds stand near 65% for a hike, a complete U-turn ahead of Warsh’s speech. Traders' eyes are set on a busy economic docket in the US. During the week, the release of ISM Manufacturing and Services PMIs will provide an update on economic activity, while a tranche of US jobs data, led by Nonfarm Payrolls for August, could confirm whether the labor market remains solid.
In Mexico, developments surrounding the USMCA free trade agreement are crucial for the emerging-market currency, as talks are set to continue. Nevertheless, US President Donald Trump has remained reluctant to extend the free trade agreement, signed during his first administration.
In addition, Mexico's economic docket will feature the August Consumer Confidence on Thursday.
USD/MXN Price Forecast: Technical outlook
In the daily chart, USD/MXN trades at 16.9994, keeping a bearish tone as spot holds beneath the medium-term descending trend line at 17.0838 and the clustered 50-, 100- and 200-day simple moving averages (SMA) around 17.3004. The failure to reclaim these overhead levels suggests the pair remains capped within a broader downtrend, while the Relative Strength Index (RSI) at 38.8 stays below the midline, hinting at persistent but not extreme selling pressure.
On the topside, initial resistance emerges at the medium-term downtrend line near 17.08, ahead of the broader SMA cluster around 17.30, which reinforces the prevailing bearish structure. A sustained move above these barriers would be needed to ease downside pressure, with the long-term descending trend line far higher near 18.12, marking a more distant cap on any recovery attempts.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Mexican Peso FAQs
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.
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.
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.
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.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
