The Mexican Peso is the national currency of Mexico, also known as MXN. The Mexican peso consists of 100 centavos and is usually represented by the symbol $ or Mex $. The word peso comes from the Mexican word “pesos,” which means “weights” and refers to gold or silver weights.
Historically, the peso was originally based on the official currency of Spain, the real, which was the Spanish dollar struck in silver. The Mexican name comes from the most common identification of the currency, the 8 real silver coin that remained in circulation until the mid-19th century. In 1863, the first centavo-denominated coins were produced, each worth one hundred pesos. These coins remained in circulation until the mid-20th century, but their gold content decreased significantly over time.
What is USD / MXN (US Dollar / Mexican Peso)?
USD / MXN stands for US Dollar versus Mexican Peso (USD / MXN), which tells you how much the US Dollar is worth compared to MXN. USD / MXN is an exotic pair. However, the Mexican peso is one of the busiest currencies among US dollar-denominated currency pairs. Currency of Mexico and emerging market. Apart from this, the United States and its historical partnerships, as trading partners, tend to increase the value of this currency.
It is also worth mentioning that the USD / MXN currency pair usually trades in the United States from Sunday evening to Friday afternoon, which offers useful opportunities for traders. However, volume and volatility can fluctuate significantly in each 24-hour cycle, with spreads (the difference between bids and requests) widening during quiet periods and narrowing during active periods. In addition, the ability to open and close positions at any time can be considered one of the most important advantages of the forex market; most trading strategies unfold during active periods.
As we all know, Mexico is the 9th largest oil producer in the world. This, in turn, binds Mexico to its natural resources. However, the Mexican peso is closely correlated with other commodity-based currencies, including the Brazilian real (BRL) and the Colombian peso (COP). This relationship reinforces the importance of data on energy volatility and crude oil and gas futures markets.
Major Factors Affecting the USD / MXN Currency Pair
The value of the USD / MXN currency pair is primarily influenced by geopolitical and global sentiment, as are many emerging market currencies. In general, when global volatility is low, the peso appreciates, as we have seen in the years following the Great Slowdown. Let me remind you that volatility has plummeted in a host of inclusive central bank policy initiatives and the value of the peso has risen slowly. After the crisis, the value of the Mexican peso against the green belly rose by as much as 30 percent. On the contrary, the value of the peso also fell by 20 percent in three months, mainly due to the election of President Donald Trump, which increased volatility and contributed to currency losses.
Historical data tables:
USD / MXN historical price data
Higher interest rates:
The higher interest rate can be considered as one of the key factors influencing the Mexican peso. It should be noted that in 2019, the peso paid about 8% interest per annum, compared to about 2% against the US dollar. And this undermined the value of the Mexican currency. The Mexican peso has produced higher returns than the U.S. dollar for many years due to higher interest rates.
Proximity to the United States:
Mexico and the United States share a common border, and this relationship extends to wide-ranging trade agreements and immigration disputes. However, physical proximity usually has an extra effect on the value of the peso. Highly prosperous border regions that engage in trade interactions increase the liquidity of the Mexican peso.
It is worth recalling that the USD / MXN currency pair offers a natural currency game on the market and is also the most liquid MXN pair, as already mentioned. Aside from that, the U.S. exported $ 256 billion worth of goods to Mexico in 2019, while importing $ 358 billion worth of goods and eventually adding significant liquidity to the currency. This trade balance (BOT) has shown some volatility over the past decade and the changing ratio has had an impact on the relative value.
The price of WTI oil is also considered to be one of the main factors affecting the Mexican peso, as Mexico’s huge oil reserves provide a guarantee for financing. Borrowing capital allows the government to raise funds for domestic spending programs. However, international lenders tend to invest and take risks in oil-dominated countries when oil prices are high. The relationship between the Mexican peso and oil is also a great way to speculate on oil prices.
Let me remind you that, as a non-member oil producer, Mexico has been hit hard by the increase in OPEC’s supply. This has increased the pressure from the fall in oil prices after 2013. The dramatic fall in oil prices in early 2020 undermined the value of the peso.
Economic data such as the Consumer Price Index (CPI), Gross Domestic Product (GDP), Trade Balance, Retail Sales, Labor Force Survey (Canadian Unemployment Statistics), Consumer Price Index, and Industrial Price Index have a major impact on USD / MXN prices. These data are important to understand the stock market, and in particular the direction of MXN.