USD/MXN forecast: Mexican peso relentless bull run gains steam

The Mexican peso continued soaring against the US dollar as the country’s economic recovery gained steam. The USD/MXN price retreated to a low of 17.06, the lowest level since May 2016. It has plunged by more than 33% from its highest point since April 2020.

Mexican peso strength continues

The Mexican peso has been one of the best-performing currencies this year. It has jumped by more than 12% this year even as the US dollar index has moved sideways. After soaring to a high of $105.87 in March, the DXY index has dropped by more than 3% to the current $102.65.

The Mexican peso continued soaring after the Bank of Mexico decided to leave interest rates unchanged for the second straight time. It did that as the country’s consuer inflation continued falling. In its statement, the bank hinted that it will leave rates unchanged in this level for a while.

The most recent data showed that the headline consumer price index dropped to 5.18% in mid-June from 5.84% in the end of May. Core inflation also declined from 7.39% to 6.91% during the month. Explaining the recent Mexican peso gains, an analyst at Fitch Ratings wrote that:

“The tighter monetary policy stance relative to the U.S. has been key to Mexico’s peso appreciation in the past months, further diminishing price pressures from imports.”

The Mexican economy is also done well because of the rising inflows from companies as tensions between the US and China continued. Data shows that Mexico’s Foreign Direct Investments (FDI) in the country jumped to over $32.1 billion in the first nine months of 2022. It jumped to over $18.4 billion in the March quarter alone.

The next important USD/MXN news will be a statement by Jerome Powell, who will speak at an ECB summit in Portugal.

USD/MXN technical analysis

USD/MXN chart by TradingView

The daily chart shows that the USD to MXN price has been in a strong bearish trend in the past few months. It has moved below the important support level at 17.40, the lowest level on May 15th. It has crashed below the 25-day and 50-day exponential moving averages. 

The MACD indicator has remained below the neutral level since March 27th. Further, the Relative Strength Index (RSI) has moved below the neutral point of 50. Therefore, the pair will likely continue falling as sellers target the important support at 16. A move above the resistance point at 17.40 will invalidate the bearish view.