The USD/MXN rally gained steam today as forex investors reacted to the rising US Treasury yields and mixed economic data from Mexico. It is trading at 20.6, which is 1.60% above this week’s low of 20.34.
Mexican peso slides
The Mexican peso and other emerging market currencies declined sharply today mostly because of the rising US yields. The 30-year, 10-year, and 5-year yields rose as Congress continued to debate Biden’s $1.9 trillion stimulus package. The House of Representatives will vote for it tomorrow.
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Economists expect that the stimulus package will supercharge the American economy and push inflation above 2%. This will, in turn, push the Federal Reserve to hike interest rates and taper the quantitative easing earlier than expected.
Therefore, the USD/MXN price has risen today because rising US yields make Mexico and other emerging markets (EM) less attractive.
The pair is also rising after the mixed numbers from Mexico. According to the Mexican statistics bureau, the country’s unemployment rate rose sharply in January. The rate rose from 3.8% in December to 4.70%, which is the highest it has been since April last year. This performance was worse than the median estimate of 4.30%.
On a positive note, the country’s economic activity increased by 0.10% in December. Analysts were expecting the activity to have dropped by 0.60%. At an annualised rate, the economic activity declined by 2.70%, an improvement from the previous decline of 4.10%.
Further data from Mexico revealed that the economy rose by 3.3% in the fourth quarter after it rose by 12.1% in Q3. This increase led to an annualised decline of 4.5%, which was better than the previous quarter’s decline of 8.6%.
The USD/MXN also rose even as the crude oil rally continued. Brent and West Texas Intermediate (WTI) rose to $66.53 and $63.50, respectively.
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USD/MXN technical outlook
The hourly chart shows that the USD/MXN has rebounded this week and moved slightly below the year-to-date high of 20.83. The price is along the upper line of Bollinger Bands and slightly above the ascending trendline. The pair is also slightly above the 25-day moving average. Therefore, the pair will likely continue soaring as bulls attempt to test the 20.83 resistance level.