USD to MXN Forecast

History of the USD to MXN

The USD/MXN cross has been around for decades because of the close geographical and economic relationship between the United States (US) and Mexico. Mexico started using the Peso during its colonial period while the US dollar was introduced in 1862.

For the most part, the Mexican Peso has tumbled against the US dollar because of the strength of the American economy. Data shows that the USD to MXN pair was trading at 9.60 on average in 2002. It then surged to a record high of 25.35 in 2020, which is equivalent to a 168% increase.

There is no denying the fact that people holding assets in the Mexican Peso in that period saw a huge rise in their values.

Most recently, the USD/MXN price has been in a strong downward shift, helped by the ongoing deglobalization trends. As more American companies move away from China, they are finding Mexico to be a good alternative.

That’s because Mexico has lower labor standards than the US and the country is a member of USMCA (a replacement of NAFTA that allows trade to flow smoothly between the US, Mexico, and Canada).

Latest USD to MXN forecast

To come up with the latest USD to MXN forecast, we need to understand why the pair is seeing a downward trend for months.

There are several reasons for this. First, crude oil prices have been quite robust in the past few months. They have moved from negative during the pandemic to almost $90. This is important because Mexico is a substantial oil exporter, with most of its oil exports to the United States. The country exported 212 million barrels of oil to the US in 2021.

Second, the Mexican economy is benefiting from the vast amount of American government spending. In the past few years, the US has spent trillions of dollars to shore up its economy. Most of these funds have been channeled to Mexico, which is one of the biggest of America’s trading partners.

Further, cross-border payments have contributed to the strong performance of Mexico’s economy. There are millions of people in Mexico who send billions of dollars back home every year. As such, the imbalance of these flows is usually tilted towards Mexico. Studies show that remittances from the US to Mexico surged to over $51 billion in 2021.

Perhaps, the biggest reason why the USD to MXN pair has fallen is the number of companies that are moving from Asia to Mexico amid geopolitical tensions. These companies view Mexico as a more friendly country than China. As a result, the Mexican economy expanded at a faster pace by 4.8% in 2021 and 2.1% in 2022 than was expected.

Meanwhile, the Fed and Banxico have maintained a hawkish tone for months. In February, Banxico hiked interest rates by 0.50% and pushed rates to a record 11%. There is the expectation that the bank will deliver several smaller hikes later this year.

The Fed, on the other hand, hiked by 0.25%, bringing rates to 4.75%. With the labor market tightening and inflation stubbornly high, it is expected that the Fed will push interest rates above 5.5% in 2023. Therefore, the spread between Mexico’s and US interest rates has continued to widen.

Finally, there are signs that oil prices will remain high in 2023. Analysts at Goldman Sachs believe that prices will rise to $110.

USD to MXN forecast 2023 (technicals)

The USD to MXN price peaked at 25.35 in 2020 and crashed to a low of 18.6 on average in 2023. On the weekly chart, the pair crashed below the key support level at 19.42, the lowest point on May 30th. It was also the lower side of the descending triangle pattern.

The pair has moved below the 50-week and 200-week exponential moving averages (EMA). The two MAs have made a bearish crossover, meaning that the pair will likely continue falling, with the next important level being at 17.47, the lowest point on July 2017.

Transferring USD to MXN

The volume of the USD and MXN pairs exchanged every day is substantial because of the close relationship between the two countries. For example, the US exported goods worth over $276 billion in 2021 and imported $384 billion worth of goods. As such, the two countries have a trade deficit of over $108.2 billion, which tends to favor Mexico.

In addition to this, as mentioned above, the volume of remittances from the US to Mexico has been growing. Therefore, these flows led to an increase in competition among money transfer companies including XE, Wise, Remitly, and PaySend.

The overall cost of transferring funds from the US to Mexico is relatively small because of the competition.

As shown below, sending $1,000 from the US to Mexico is free when using XE and $10.82 when using Wise. While XE is free, the recipient will experience fewer deductions when using Wise because it offers a better exchange rate.

Is it a good time to buy USD with MXN?

As illustrated, the Mexican Peso has been gaining against the US dollar in the past few months. Analysts believe that fundamentals are supportive of the Mexican Peso because the US economy is expected to lag that of Mexico.

Therefore, with the US dollar weakening, it means that now is a good time to buy it with the Mexican Peso. Buying during the drop will help you benefit when the US dollar makes a comeback and resumes the bullish trend.

Historically, the US dollar has been a better performer than the Peso because of its role as a safe haven and reserve currency.

USD to MXN 6 month forecast next 6 months – analysis

The USD to MXN will likely continue falling in the next six months especially if America’s inflation continues falling. Lower inflation and rising recession risks could push the Fed to slam its brakes on rate hikes.

Some signs of recession are increased white-collar job losses, weak industrial production, and tumbling retail sales.

On the other hand, the Mexican economy is expected to do well, thanks to more foreign direct investments.

On the daily chart, we also see that the USD to MXN price has been in a strong bearish trend. It managed to move below the support level at 19.41, the lowest level in May 2022.

The pair is below the 50-day and 100-day moving averages, depicted through a descending trendline in blue. Therefore, the pair will likely continue falling in the next six months of the year. This view will be confirmed if the pair moves below the year-to-date low of 18.50.

A bit more about USD to MXN