- The US dollar has fallen slightly during the trading session on Friday against the Mexican peso, and what would be thought of as a “risk on move.”
- This is a little bit different from many other currency pairs, as it does tend to run backwards as far as what most people think about.
- If the United States sinks a bunch of him in trade deals, this will be one of the places where the US dollar probably loses.
This is mainly due to the fact that Mexico sends most of its exports into the United States, and if the US economy starts to strengthen again, that’s actually just as good for Mexico as it is for the United States, if not better.
New Attitude?
One thing that might be different about this pair going forward is the fact that the amount of remittances going back to Mexico may be quite a bit less than usual. That being said, we will have to watch out for the longer term, but it is something to pay close attention to, mainly due to the fact that the USD/MXN pair was driven just as much by people sending money back home to Mexico as it was anything else.
The interest rate differential favors the Mexican peso, and I think that will continue to be the case as the Bank of Mexico keeps interest rates much higher than the Federal Reserve will do. Furthermore, when you look at this chart you can see that there is an area right around 19.45 MXN that has been short-term support, but if we break down from here, I don’t see much stopping the US dollar from dropping down to the 19 MXN level, a large, round, psychologically significant figure that’s been important multiple times in the past.
Alternatively, if we turn around and rally from here, I’d be looking at the 200 Day EMA to offer a bit of resistance space but breaking above that could open up the possibility of a move to the 20 MXN level. This would be a decidedly “risk aversion” type of move.
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