Get Expert Forex Analysis for the USD/MXN Exchange Rate

Instrument description

If we look at the Forex markets in the North American region, then it is dominated by U.S Dollar (USD), Canadian Dollar (CAD), and Mexican Peso (MXN). The USD and CAD are two of the major currencies, while the MXN is the tenth most traded currency in the Forex markets. The Mexican Peso may not be widely traded in global Forex markets but ranks 8th when it comes to liquidity and offers access to the Latin American markets.

U.S.A and Mexico share a common border, and the relationship of the U.S Dollar with the Mexican Peso is defined by the quote USD/MXN. In the exchange rate USD/MXN, the USD is the base currency, while Mexican Peso is the quote or counter currency. The USD/MXN pair accounts for most of the activity when we talk about Forex trading in Peso. Both the USD and MXN are considered as a high yielding currency, which makes the USD/MXN pair a feasible option for both short term traders and long term investors.

The USD/MXN and shows how many Pesos are needed to buy one U.S Dollar. If, for instance, the USD/MXN is quoted at 22.45, it means 1 USD equals to 22.45 MXN, and a trader would pay 22.45 Pesos to buy 1 U.S Dollar. Mexico is not only a neighboring country of the U.S but also a member of the North American Free Trade Agreement (NAFTA), which makes the MXN and its paring with USD quite a lucrative option in Forex trading. According to a survey of Bank of International Settlements, the USD/MXN pair accounts for 2.1% of the daily transactions in the Forex market.

History of USD/MXN Currency Pair

The U.S Dollar was adopted as the official currency by the U.S Congress in 1792. The U.S Dollar is the most popular traded currency in the world, and USD also acts as a global reserve currency. The top exports of the U.S.A include food products, beverages, motor vehicles, crude oil, auto parts, pharmaceuticals, and aircraft. The U.S Dollar is considered a stable currency and also has the upper hand when paired with other global currencies.

In recent years, the status of Mexican Peso has been altered from an emerging currency into a major international currency and trading instrument. Mexico is the 9th largest oil producer, and the value of Peso is tied to the changes to global oil prices. The large portion of Mexico exports comprises electronics, oil and gas products, manufactured goods, fruits, and auto parts.

Mexico faced consistent economic ups and downs from 1994 to 2008 but has managed to recover due to expansion in trade, industrial, construction, and tourism sectors. The South American economic crisis affected nearly every country in the region, but the Mexican Peso was unaffected; instead, it grew in value. The Mexican economy saw a rapid surge in 2008 due to crude oil prices, reaching a new maximum value. The oil exports contribute to 10% of the income that the government of Mexico generates.

Being neighbors, the U.S and Mexico have always shared strong trade relations. The U.S is recognized as the largest economy in the world while Mexico ranks 12 in the world. According to statistics, Mexico imports nearly 16% of the total exports of the U.S, and it consists of machines, plastics, electronic equipment, and engines. On the other hand, the U.S imports 80% of the total exports of Mexico, and it comprises of oil, medical equipment, and vehicles. In recent times, the value of MXN is significantly affected due to slow growth in the extraction of crude oil and constant devaluation of the Mexican Peso.

How to Trade USD/MXN Pair

The USD/MXN currency pair may not be widely traded in global markets but is a popular trading pair in the Forex markets of the North American region. The USD/MXN pair is preferred by both traders and investors due to its high volatility and trading volume, which has increased in recent times. The USD/MXN is traded 24/7 for five days a week, but the best time for trading is in the morning when the markets are opened, and there is a steady flow of financial news that determines the direction of the market. The market is most active from 11:00 to 18:00 GMT and can move 200 to 300 points in a day.

Among other options you can trade the USD/MXN pair through Contract for Difference (CFDs), where you can predict the price movement of the underlying asset. With CFDs, you can use leverage where by depositing a small amount, you can open a larger trading position. If you think that the USD will rise in value, then you would take a long position or Buy, and similarly, if you think that the USD will weaken in the coming days, then your take a short position or Sell. Trading with CFDs allows you to magnify the profits, but there is also an equal chance of losses, so you may want to apply a risk management strategy.

How to read the Price Change in USD/MXN Pair

The USD/MXN pair is generally known to be sensitive to sudden volatility and trends based on market sentiments. The Bid-Ask spreads are quite wide when the market is slowly moving, but tight spreads are noticed when the market is active. The USD/MXN pair may not be as widely traded as other major currency pairs, but the USD/MXN pair offers significant liquidity and access to other Latin American markets. The sudden volatility means that traders can increase their prospect of earning considerable profits in a short period if they correctly predict the price movement and direction of the market, otherwise it will result in equal losses.

One rule to follow when trading USD/MXN pair is that, when the quote of USD/MXN is rising, it means that USD is gaining value against the MXN. Similarly, when the rate of USD/MXN pair is falling, it shows that MXN is gaining as compared to USD. If we take a look at the price chart of the USD/MXN pair, we see the pair attaining a high value of 25.397 on March 23, 2020. There have been both upward and downward trends since March, but the pair reached a low value of 21.452 on June 8, 2020, and currently, the USD/MXN pair trades on 22.453.

The Bid price or is 22.464, while the Asked price is 22.452. If we look at the last five years, the USD/MXN reached a low value of 17.055 in April 2016 and a high value of 22.040 in January 2017.

What causes price change in USD/MXN pair?

The market performance of USD/MXN depends on the economic health of both U.S and Mexico. There are many fundamental or macro-economic factors that affect not only the individual value of U.S Dollar and Mexican Peso but also the USD/MXN pair. Some of the vital factors include interest rates, inflation, Gross Domestic Product (GDP), Consumer Price Index (CPI), employment rate, and other monetary policies that are proposed and implemented by the central banks in U.S and Mexico.

The U.S Federal Reserve Bank, known as Fed and the Bank of Mexico, usually monitors the value of U.S Dollar and Mexican Peso, respectively, and also issue economic releases and reports that determine the value of USD/MXN pair. The trade relations of the U.S and Mexico are heavily integrated, so the trade balance plays a crucial role in determining the future value of the USD/MXN pair.

The Mexican Peso shows a tight correlation with other commodity-based currencies that includes Columbian Peso (COP) and Brazilian Real (BRL). The global fluctuations in the oil and gas market affect not only the individual value of MXN but also the USD/MXN pair. The U.S oil inventory report released every week on Wednesday has a strong influence on the USD/MXN quote. When reacting to changes to oil prices, the MXN behaves similarly like the Russian Ruble. Traders should take help from technical analysis tools and the latest financial news to effectively trade the USD/MXN pair.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.