Expectedly, given the uncertain global environment, the Mexican Peso has proven to be quite resilient hovering back again at the psychological barrier of 19.60 against the dollar. The USD/MXN exchange rate is now stabilizing around this important milestone. This trend, indicative of trader indecision, is further compounded by a host of other macroeconomic factors. Currently, after the latest trading sessions, USD/MXN is down 0.06%, or almost a tenth of a peso, located in around 19.601.
The stabilization occurs within a tight trading range. This band has been constant since April 18, with the exchange rate bouncing around between 19.46 and 19.76. Traders are intensely focused on the market. Their attention has turned to Mexico, which is likely to soon see an economic downturn, with looming US tariffs on the country’s steel and auto exports.
Market Sentiment and Technical Indicators
Taken together, the recent run in usd/mxn has a good dose of optimism and caution baked in. As it nears the 10-day Simple Moving Average (SMA), the pair shows an example of bearish momentum drying up. Now traders are obviously holding their breath, if the flattening Relative Strength Index (RSI) is any indication. As it stands, it sits near the 40 threshold, which indicates a slightly bearish outlook.
While markets are excited over thawing trade tensions, Mexico’s economic reality still presents risks that could hurt the Peso. The soon-to-be inflationary fiscal support—in large part designed to help low- and middle-income Americans—will provide even more stimulus to the economy. All of these measures are designed to increase domestic consumption. They might inadvertently increase pressure on the Peso in the short run.
Mexico is still subject to targeted protectionist U.S. administration tariffs, especially with respect to its steel and automotive industry. These tariffs would have an immediate and lasting impact on the trade balance and economic health of Mexico, impacting the stability of currency in return.
Economic Indicators and Future Projections
Mexico’s market participants are anxiously looking forward to Mexico’s inflation report next Thursday, for the month of April, of course. They forecast it to show an acceleration in price growth, forecast to reach 3.9% year-on-year (YoY). This type of data will be crucial as BNMX’s climate strategies shape new monetary policy moving forward. Most analysts expect Banxico to cut interest rates by 25 to 50 bps. This possible improvement could be adopted by them at their May 15th meeting.
These expected cuts are designed to boost economic activity as inflationary pressures continue to build on the West Coast. Impacting the Peso’s exchange rate may be a goal of such actions. A clean daily close above 19.60, and preferably 19.76, would be needed for USD/MXN to get back on solid upward footing. Should the exchange rate break below Wednesday’s low of 19.56, the Peso could see more downside risks. If this decline continues, it may return to the record low levels we saw in April.
Political Landscape and USMCA Support
In light of these economic dynamics, President Claudia Sheinbaum has reaffirmed her commitment to the United States-Mexico-Canada Agreement (USMCA), known as T-MEC. This support underscores Mexico’s intent to foster stronger trade relations with its North American partners amid ongoing negotiations over tariffs and trade balances.
The US government’s approach to USMCA has been somewhat cavalier and dismissive. It’s intended to restore some degree of predictability to trade relationships and shield important sectors of the economy from being caught in the crossfire of tariffs. The administration is rightly prioritizing steps to mitigate risks associated with U.S. trade policies. Simultaneously, it undercuts Mexico’s economic, competitive position in North America.