USD/MXN: Peso Stumbles After Crude Oil Crash
USD/MXN is higher on Tuesday, after crude oil’s -5% drop has traders calling the peso’s recent strength against the US dollar into question.
The Mexican peso has reversed four days of gains against the dollar as concerns over China’s economy triggered heavy selling in crude oil.
Mexico ranks among the world biggest exports of oil, accounting for 2.4% of global supply. As such, the peso is sensitive to changes in the oil price.
At the time of writing, USD/MXN is changing hands at 20.44, up around +1.25 in the last three days. That being said, the peso remains around 3% higher than its lowest point in July.
Overall, the peso has performed well this year. So much so, that many analysts have labeled it the “super-peso”. The relative strength comes as the country is expected to eat into China’s factory output, as US companies bring manufacturing closer to home.
Subsequently, despite the US dollar having one of the strongest years in decades, it’s gained just 2.5% against the peso in 2022.
One reason the peso is holding up is the increasing money flowing south from immigrant workers who send money home to relatives. Remittances to Mexico rose +16% in the first half of 2022, despite a slowing US economy. In the 12 months leading to June, inbound remittances were a record $5.5 billion, equal to 4.2% of Mexico’s GDP, helping offset the lower oil price.
US Dollar to Mexican Peso Outlook
The daily price chart shows USD/MXN is turning higher. Notably, the recent weakness reversed from the support of the 50, and 100-Day Moving Averages (DMA’s)at 20.19 and 20.15, respectively (green line and blue line).
As a result, the pair is attempting to punch through the resistance of the long-term 200-DMA at 20.42 (pink). Furthermore, the Relative strength Index (RSI) is facing upwards, suggesting that bullish momentum is growing.
If the rate closes above the 200 DMA, technical traders may be encouraged to increase bullish exposure. Here, we could expect the peso to weaken into the 20.80 – 21.00 trading range.
However, failure to finish the day above the 200-DMA would suggest sideways price action will prevail.