Mexican Peso Strengthens as US Yields Drop and Carry Trade Revives
The Mexican Peso strengthened against the US Dollar on Tuesday, as lower US Treasury yields and profit-taking on the Dollar revived the carry trade. The USD/MXN pair fell 0.55%, reaching a two-day low of 17.91 before settling at 17.97. This movement came as the US Dollar Index (DXY) dropped 0.25% to 101.84, reflecting broader Dollar weakness.
Despite the Peso’s gains, Mexico’s consumer confidence declined to 45.1 in September, its first drop since May, according to INEGI. The Finance Minister, Edgar Amador, announced that Mexico will prioritize borrowing in local currency at fixed rates and long maturities to reduce exposure to interest and exchange rate risks, noting that 79% of debt will be denominated in local currency.
Market participants are now awaiting key economic data, including Mexico’s September inflation report and the minutes from the Federal Reserve’s last meeting. Recent comments from Fed officials, such as Mary Daly and Jeffrey Schmid, suggest that further rate hikes may be necessary depending on economic conditions.
Technically, the USD/MXN pair remains bullish in the near term, trading above key support levels around 17.26 and 16.89. The Relative Strength Index (RSI) at 66.4 indicates firm but somewhat stretched upward momentum, with resistance seen at 18.1200.