USD/MXN refers to the exchange rate between the US dollar and the Mexican peso, reflecting the amount of Mexican pesos required to buy one US dollar. As an exotic currency pair, USD/MXN tends to be less liquid compared to major pairs, primarily due to Mexico’s status as a developing economy.
Despite this, the USD/MXN offers traders opportunities due to its volatility and the economic relationship between the US and Mexico.
USD/MXN Trading hours and key factors
Traders can engage with USD/MXN from Sunday evening to Friday afternoon in the US, with the highest trading volume typically occurring during morning hours. This period aligns with the release of key US economic data, such as employment figures and inflation rates, which influence market activity. The trading hours for the Mexican peso also align with US equity and futures markets.
Economic ties and influences on USD/MXN
The value of the Mexican peso is closely linked to Mexico’s natural resources, particularly oil. Mexico is among the top 15 oil producers globally, and fluctuations in oil and gas prices impact the peso’s value, which, in turn, affect the USD/MXN exchange rate. Additionally, the peso’s performance is interconnected with other Latin American currencies, such as the Colombian peso and the Brazilian real, both heavily reliant on petroleum exports.
The USD/MXN exchange rate is influenced by various factors, including economic policies in both Mexico and the United States. The two countries share extensive economic ties, with Mexico being the largest trading partner for US goods and the second-largest export market. The US-Mexico-Canada Agreement (USMCA), which replaced NAFTA in 2020, plays a crucial role in shaping the trade relationship and, consequently, the USD/MXN exchange rate.
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Impact of central bank policies and oil prices on USD/MXN
Central bank decisions, particularly those related to interest rates, also affect the USD/MXN exchange rate. For instance, when the Bank of Mexico raises interest rates, it can increase demand for peso-denominated assets, strengthening the peso against the US dollar. Conversely, changes in US Federal Reserve policies can influence the value of the dollar, impacting the USD/MXN exchange rate.
Global energy prices are another key factor. Both the US and Mexico are major crude oil producers, and fluctuations in oil prices can lead to changes in the USD/MXN exchange rate. Typically, rising oil prices may weaken the US dollar relative to the peso, as oil-exporting nations’ currencies tend to appreciate.
What to monitor when trading USD/MXN
USD/MXN traders should closely follow economic data releases from both countries, such as GDP growth, employment statistics, and inflation rates. Key institutions to monitor include the US Federal Reserve, the Bank of Mexico, and Mexico’s National Institute of Statistics and Geography (INEGI).
Oil-related events, like OPEC meetings and US oil inventory reports, can also offer clues about possible changes in the USD/MXN exchange rate.
Latest Developments: USD/MXN rises after retail sales slump
Most recently, USD/MXN pair rose after a sharp drop in Mexican retail sales raised concerns about the country’s economic outlook.
Mexico’s statistics agency, INEGI, reported a strong decline in retail sales, both on a monthly and annual basis. The disappointing data added to fears of economic slowdown, with mid-month inflation expected to show a mixed picture—core inflation rising slightly while the headline rate edges lower.
On the U.S. front, USD/MXN gained strength as the Bureau of Labor Statistics revised nonfarm payrolls figures down by 800,000, boosting confidence in the greenback. Wall Street reacted positively, with major indexes trading in the green.
Fitch Ratings issued a warning regarding Mexico’s growing debt, which is expected to exceed 51% of GDP, posing risks to the country’s sovereign rating. The agency highlighted the fiscal strategy and governance reforms under the incoming administration of Claudia Sheinbaum as critical factors for Mexico’s creditworthiness, a positive factor for USD/MXN uptrend.
Fitch also cautioned that proposed judicial reforms could harm Mexico’s institutional profile, with consequences becoming clearer once the reforms are enacted.
Conclusion
Grasping the factors that impact the USD/MXN currency pair, like economic relationships, central bank actions, and global oil prices, is crucial for traders dealing with this exotic pair. Keeping up with economic news in both the US and Mexico can help traders make smarter decisions and possibly benefit from the volatility that often comes with USD/MXN trading.
