USD/MXN: Mexican peso rises helped by several catalysts

The USD/MXN price is under pressure, helped by higher oil prices, US stimulus, and higher inflation in Mexico. The pair is trading at 20.07, which is 2.60% below the year-to-date high of 20.60.

Multiple catalysts push the Mexican peso higher

The USD/MXN has dropped substantially in the past few weeks because of the surging crude oil prices. This week, the price of Brent crude oil rose to more than $61 for the first time since last year. The West Texas Intermediate (WTI) rose to above $57, helped by the rising demand and falling US inventories. As a leading oil exporter, Mexico usually benefits from high oil prices.

The pair has also dropped because of the rising expectation of a new stimulus in the United States. Democrats are attempting to pass a $1.9 trillion stimulus to support the ailing economy. This is beneficial to the Mexican peso in two ways. First, it will increase demand for Mexican goods because of the strong relationship between the two countries.

Second, a high stimulus package will lead to more US budget deficit, which is usually bearish for the dollar. Also, the rising supply of the currency will likely push its value lower.

Meanwhile, recent data shows that Mexico’s inflation is rising. According to the country’s statistics bureau, the headline consumer price index (CPI) rose by 0.86% in January after rising by 0.38% in the previous month. This increase led to an annual increase of 3.54%, which is better than the previous 3.15%. A higher rate of inflation rises the possibility of an interest rate hike by the central bank.

Further, the overall weaker US dollar has pushed the USD/MXN price lower. The dollar has been tumbling after the US published weak employment numbers.

USD/MXN technical outlook

The four-hour chart shows that the USD/MXN pair has been forming a head and shoulders pattern lately. The current price is close to the neckline of this pattern. Also, it has moved below the moving averages and the Ichimoku cloud. Further, the Relative Strength Index (RSI) has continued to decline. Therefore, the pair will likely continue falling as bears target the next support at 20.00.