|

Mexican Peso: Carry-driven strength extends against US Dollar – Rabobank

Rabobank's Christian Lawrence and Molly Schwartz highlight that USD/MXN has broken below 17 for the first time since May 2024, prompting a forecast revision toward 16.5 in coming weeks. They see strong carry demand and subdued volatility keeping MXN supported, while a mild retracement is projected for next year, with the pair staying within recent ranges and not breaking below 16.25.

Technical break reinforces MXN strength

"We expect strong demand for carry to remain supportive MXN and the recent break down through 17 opens up a move to 16.5 in the near term. We do have a mild retracement baked in for next year but well within recent ranges."

"USD/MXN price action confirmed a close below the 17 handle (a close below followed by a subsequent lower close) which we have been monitoring closely as that opened up thin air down to mild support at 16.45/49 before strong support at 16.25. That move lower triggered warning signals in our proprietary reversal indicator and we did see bullish divergence form."

"In light of this we are targeting USD/MXN hitting 16.5 in the coming weeks, and while we cannot rule out an extension below there, we do not expect the pair to break below 16.25."

"On the flipside, if volatility spikes, we’ll be back at price congestion in the mid-17s in the blink of an eye with a move back above 18 more than feasible in short order."

"We have revised our forecast for USD/MXN lower to reflect the confirmed close below critical support at the 17 handle and our view that the outlook for FX volatility has structurally shifted within the current regime and that MXN’s reaction function to volatility has also been reduced."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD bulls seem hesitant near 0.6950

AUD/USD attracts some buyers for the second straight day, though it remains confined within Friday's broader range amid mixed cues. The US PCE data and the US NFP report released last week tempered October Fed hike bets, dragging US bond yields away from multi-year highs and keeping US Dollar bulls on the back foot. However, geopolitical uncertainty is a tailwind for the safe-haven buck, while the RBA's cautious outlook caps the Aussie.

USD/JPY remains confined in a range below 158.00

USD/JPY holds steady around 157.75 during the Asian session on Monday, trading within a one-week-old range. Against the backdrop of soft US PCE data, the US NFP report, released on Friday, tempers October Fed rate-hike bets and drags US bond yields away from multi-year highs. Furthermore, hawkish BoJ expectations amid looming intervention risks support the Japanese Yen, capping the pair. However, geopolitical uncertainty acts as a tailwind for the safe-haven buck and limits the downside.

Gold trades with positive bias around $4,150; upside seems capped

Gold attracts some dip-buyers at the start of a new week, though it remains confined in a familiar range held over the past week or so. Against the backdrop of soft US PCE data, Friday's weak US NFP report tempered bets of an October Fed rate hike. This, in turn, drags US bond yields away from multi-year highs and benefits the non-yielding bullion. The US Dollar, however, draws support from geopolitical uncertainties and could act as a headwind for the precious metal.

Week ahead: Fed minutes in the spotlight amid bond market rout
The first full week of October and the final quarter of the year get underway with little fanfare in terms of the economic agenda. But far from being short on excitement, the coming week will test market nerves, as government bond yields continue to soar on growing worries that the energy crisis will only get worse, fuelling inflation.
CFTC Report: Speculators turn more defensive as Oil exposure falls
The week in one sentence: During the week leading up to September 29, long positions in crude oil were significantly reduced, while short positions in the Canadian Dollar went up. In addition, the positioning of the Australian Dollar and the Japanese Yen declined, while Coffee buying stood out against a more general background of defensiveness.
The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082. The decline reflects a powerful combination of US Dollar strength, geopolitical uncertainty and renewed concerns about Europe's exposure to higher energy prices.