Mexican Peso breaks 18.00 as carry trade loses its edge
- USD/MXN clears 18.00 as Peso selling extends into second day.
- Narrowing Mexico-US rate differential weakens Peso’s carry appeal.
- Five-percent Treasury yields accelerate capital rotation back toward Dollar.
The Mexican Peso extended its losses against the US Dollar for the second straight day, down 0.29%, as USD/MXN decisively surpassed the psychological 18.00 for the first time since the beginning of April 2026, trading at 18.04 at the time of writing.
USD/MXN hits six-month high as shrinking rate gap drives repatriation
Some of the reasons for the sharp fall of the Peso are the reduction of interest rate differentials between Mexico and major economies, as well as the rise of US Treasury yields, which are north of 5%, triggering large capital repatriation.
An analyst cited by Reuters sees the move as a “correction and reduction in long Peso positions, rather than a structural shift” towards the emerging market currency.
However, with interest rates set by the Bank of Mexico (Banxico) near 6.50% and the Federal Reserve hiking rates to the 3.75%-4% range and poised for at least another increase to the 4%-4.25% area, the differential narrowed to 2.50%, its lowest level after peaking at around 6% post the Covid pandemic.
This, coupled with elevated US Treasury yields paying interest in the range of 5.23%-5.61%, is more appealing than taking advantage of the yield on MBONOS in Mexico, given the risk of potential exchange rate losses.
In the meantime, Federal Reserve officials crossed the wires, led by the New York Fed President John Williams, saying that they’re not in “urgency” to tighten monetary policy. Against this view lies St. Louis Fed Alberto Musalem, who commented that monetary policy is accommodative.
The Chicago Fed President Austan Goolsbee commented that “the fact we have been 5-1/2 years above inflation target is playing with fire.” Fed Governor Michael Barr said that “there is a need to recalibrate policy,” and that the base case suggests that “further policy adjustments are likely to be needed.”
US data-wise, the Conference Board reported that consumer sentiment deteriorated, driven by elevated prices, particularly in Oil and Gas, which had reached new heights. Other data showed that the job market is solid, as job openings dipped.
Ahead, Mexico’s economic docket is light, with traders eyeing Business Confidence and the S&P Global Manufacturing PMI, both September data releases, on October 1. In the US, traders eye ADP Employment Change, US GDP, the Fed’s preferred inflation gauge, followed by Friday’s Nonfarm Payrolls report.
USD/MXN Price Forecast: Technical Outlook
In the daily chart, USD/MXN trades at 18.0496, extending its recovery well above the 50-,100- and 200-day simple moving average (SMA) cluster at 17.1914 and reinforcing a bullish near-term bias. The pair is now pressing against a medium-term descending resistance trend line drawn from 18.1651, while the Relative Strength Index (14) at 82.80 shows overbought conditions that hint at stretched upside momentum as price challenges this overhead structure and the broader long-term downtrend line that caps the recent highs slightly above 18.00.
On the downside, initial support is seen at the SMA cluster around 17.19, which should act as a first buffer on any corrective pullback, ahead of the horizontal floor at 16.89. On the topside, a clear break above the medium-term descending resistance line around the current area would open the way towards the higher long-term downtrend barrier located just above 18.00, where the latest peak near 18.12 sits as the next notable resistance reference.
(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.
Artigos Recomendados
