Mexican Peso post gains as lower US yields revive the carry trade

The Mexican Peso stages a comeback against the US Dollar on Tuesday as the latter weakens amid profit-taking and lower US Treasury yields, with traders awaiting the release of the minutes of the Federal Reserve’s last meeting. The USD/MXN trades at 17.97, down 0.55%.

USD/MXN drops as Dollar profit-taking and upbeat risk sentiment favor the Peso

An upbeat market mood supported the emerging-market currency, as USD/MXN hit a two-day low of 17.91, the level last seen on September 29. This pushed the Greenback lower, as the US Dollar Index (DXY), which measures the performance of the American currency against six others, is at 101.84, down 0.25%.

The fall of US Treasury yields boosted the appetite for the Mexican currency, even though Mexico’s Consumer Confidence fell in September, for the first time since May, as revealed by INEGI. The seasonally adjusted indicator fell from 46.3 to 45.1 in September, indicating that Mexican households are trimming durable-goods spending.

Aside from this, the Mexican Finance Minister, Edgar Amador, said that the country will prioritize borrowing in local currency at fixed rates and long maturities to reduce exposure to interest and exchange rates. Speaking to lawmakers, he added that “79% of the debt will be denominated in local currency and mostly at fixed rates and long-term maturities.”

Ahead, Mexico’s economic docket will feature inflation data for September and the release of the Bank of Mexico (Banxico's) last meeting minutes.

In the US, the trade deficit widened in August, as revealed by the Commerce Department. However, market participants are eyeing the release of the FOMC minutes of the September meeting on October 7.

Recently, Federal Reserve officials crossed the wires, with the San Francisco Fed President Mary Daly saying she supported September’s rate hike and that additional rate hikes may be needed, depending on external shocks. Recently, Kansas City Fed Jeffrey Schmid commented that the labor market is solid and that the inflation fight has a “way to go.”

USD/MXN Price Forecast: Technical Outlook

In the daily chart, USD/MXN trades at 17.9710, maintaining a bullish near-term bias as spot holds well above the triple simple moving average cluster (50, 100, 200) around 17.2570. The pair is also comfortably above the horizontal support at 16.8866, keeping the broader rebound intact, while the Relative Strength Index (14) at 66.4 stays just shy of overbought territory, hinting that upside momentum remains firm but somewhat stretched.

On the topside, the next notable resistance comes from the broader downward trend-line structure, with the latest reference high around 18.1200 acting as the immediate cap for further gains. On the downside, initial support is seen at the triple SMA area near 17.26, ahead of the more significant horizontal floor at 16.89, and only a drop back below these levels would suggest that the current bullish phase is losing traction.