Mexican Peso Strengthens Against US Dollar Amid Strong Carry Demand

Rabobank's analysts believe that the Mexican Peso (MXN) will continue to strengthen against the US Dollar (USD), citing strong carry demand and subdued volatility as key drivers of its performance. According to Christian Lawrence and Molly Schwartz, USD/MXN has broken below 17 for the first time since May 2024, prompting a forecast revision toward 16.5 in coming weeks.

The analysts expect that the recent break down through 17 will open up a move to 16.5 in the near term, with a mild retracement projected for next year within recent ranges and not breaking below 16.25. They also highlighted that the USD/MXN price action confirmed a close below the 17 handle, which triggered warning signals in their proprietary reversal indicator.

In light of this, Rabobank is targeting USD/MXN hitting 16.5 in the coming weeks, but notes that if volatility spikes, it's possible to see a move back above 18 in short order. The analysts have revised their forecast for USD/MXN lower to reflect the confirmed close below critical support at the 17 handle.