The USD/MXN price went parabolic on Monday as investors reflected on last weekend’s Mexican election and its impact on the economy. It soared to 17.71, its highest swing since April 19th of this year. It has jumped by almost 8% from its lowest point this year.
Budget deficit concerns
The USD/MXN, USD/INR, and USD/ZAR pairs have been in the spotlight this year as investors reacted to the recent elections. India’s Narendra Modi is expected to win his third presidential term while South Africa’s ANC has lost its majority in parliament.
In Mexico, Claudia Sheinbaum, the former mayor of Mexico City, became the first female president. She won the election by a large margin in a sign that voters have welcomed her predecessor’s policies.
Analysts expect that Mexico will face several challenges, which explains why the peso crashed after her victory. First, there is the issue of the budget deficit, which has widened to the highest level in over three decades.
Second, there are concerns about Petroleos Mexicanos, a giant company that has become the most indebted in the region. Over the years, the government has been forced to invest more money in the company, dragging its finances.
Further, there are some trade concerns between Mexico and the US, its biggest trading partner in the world. Donald Trump is campaigning on being tough on the country as many Chinese companies invest in the country.
For example, he has vowed to impose a 200% tariff on Chinese EVs manufactured in Mexico. Such a move will go against the USMCA, which replaced NAFTA during the Trump administration.
Also, there are concerns about the stronger Mexican peso, which has surged during AMLO’s tenure. It has surged by over 30% from its lowest point in 2020, making it the best-performing currency in the emerging markets.
While a stronger currency is a source of pride, it has some negative implications by hurting exporters and raising costs for exporters. It has also reduced the spending power of many Mexicans who receive dollars from abroad.
USD/MXN technical analysis
The USD/MZN exchange rate bottomed at 16.26 in April as traders waited for the Mexican election. It has now bounced back and moved above the psychological point at 17.50. The pair has also jumped above the 50-day and 100-day Exponential Moving Averages (EMA).
Also, oscillators like the MACD and the Relative Vigor Index (RVI) have pointed upwards, which is a sign of strong momentum. Therefore, the pair will likely continue rising as buyers target the next key resistance at 18.50, its highest level in October last year.
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