How to Trade USD/MXN with AvaTrade
USD/MXN is the ticker symbol for the US Dollar to Mexican Peso exchange rate on the Forex market. The American dollar/Mexican peso currency pair (USD/MXN) tracks how much the USD is worth against the MXN.
While the USD/MXN is regarded as an exotic pair, it’s among the most heavily traded emerging currency pairs as the USA and Mexico have historically close trading ties. Other widely-traded exotic pairs also feature the MXN and include the EUR/MXN (Euro/Mexican peso) and the GBP/MXN (British pound/ Mexican peso).
USD/MXN Trading History
The USD/MXN pair combines two currencies with significant roles in the global economy. The US dollar needs no introduction – it’s the world’s reserve currency, first created by the US Congress in 1972. Today, the USD is the most widely used currency in the world, both in circulation and reserve. The Mexican peso is also one of the oldest currencies in North America.
Initially based on Spain’s silver dollar (called real), the Mexican peso originated from the most common denomination of the currency, which was the silver 8-real coin. Interestingly, the Mexican peso was used as an official tender in both the U.S.A and Canada until the mid-1850s. While the Mexican peso (MXN) is not as actively traded as the euro or the U.S. dollar (USD), it still constitutes LATAM’s most liquid currency, with the USD/MXN accounting for the bulk of trading activity in the peso.
USD/MXN Trading Price History
Throughout 20th century, the Mexican peso was a relatively safe and stable currency; that was until the 1970 oil crisis. As foreign loans to Mexico increased the Mexican peso’s value depreciated causing the USD/MXN to skyrocket. The situation continued to worsen until finally the Mexican government defaulted on the payment of its international loans.
The MXN continued to go on a long downward spiral as investors started taking their money out of Mexico en masse. The bloodletting of Mexico’s economy continued well into the 1990s when the government made some fundamental changes in its monetary policies. One of these changes was to reevaluate the value of the Mexican peso, changing the value of 1000 pesos to one peso.
The newly formed currency was dubbed “Nuevo peso”, which literally translates to “new peso”. In addition, the government changed the Mexican peso’s ISO code from MXP to MXN. Even though the MXN has come under immense pressure after Mexico’s economic meltdown during 70s and 80s, the USD/MXN is one of the most popular exotic pairs.
Why Trade USD/MXN?
While the USD/MXN pair attracts less trading interest than other major currency pairs, such as the euro (EUR/USD) and yen (USD/JPY), it offers highly liquid access to Latin America, as well as opportunities created by emerging markets. What is more, the Mexican peso is one of the most liquid currencies among emerging markets, frequently used as a vehicle to hedge long positions, as well as for as a means of diversification. With oil price performance so closely correlated to MXN’s value, crude stockpile data releases and news pertaining to the world’s oil trade, world production, reserves, and demand can create massive opportunities for USD/MXN traders.
Major Data Influencing USD/MXN
Here are some of the factors to look out for when trading the USD/MXN:
Central Bank Monetary Policy
When a central banks like the Federal Reserve (US Central Bank) make changes to their monetary policy, for example, by hiking key interest rates, this can disrupt demand for their respective currencies. Keeping an eye out for major Central Bank announcements that can affect the USD/MXN pair (such as those of the Fed and Banco de México) can help traders better anticipate the pairs future performance.
Economic Data Releases
Economic releases including local CPI (inflation) data, Nonfarm payrolls (employment data), gross domestic product (GDP), retails sales, purchasing managers index (PMI) and others can have a major impact on their respective currency’s price action. With Mexico being one of the largest oil producers in the world, the weekly U.S. oil inventory report, can also have a particularly strong effect on USD/MXN.
Geopolitical tensions such as trade wars, elections and wars tend to introduce instability which reflects in the overall forex market and with the USD being the world’s reserve currency, instability means more safe-haven inflows in the US dollar.
As one of the top-15 oil-producing countries, Mexico is closely tied to its oil resources. Naturally, the MXN is positively correlated with rising oil prices as well as a number of other commodity-based currencies, including the Brazilian real (BRL) and the Colombian peso (COP).
Day Trading the USD/MXN Pair
The USD/MXN forex pair offers Mexican peso traders a variety of short- and long-term opportunities – and while the forex market is open 24 hours a day, 5 days a week – the best times to trade the USD/MXN are eight before and after U.S. economic releases which come out between 12:30 a.m. and 14:00 p.m. GMT.
USD/MXN Volume and Volatility
As noted above, while the forex market operates 24-hours a day Monday through Friday to accommodate businesses across the world, there are specific times when certain pairs are most volatile. For example, during major U.S. Economic Calendar releases between 12:30 a.m. and 14:00 p.m. GMT, the USD/MXN pair generates increased trading volume, with high odds for trending movements. On the flipside, USD/MXN volume and volatility tends to drop precipitously between Asian and European market hours. That being said, energy-related data releases, announcements or breaking news can still trigger a flurry of trading activity for the USD/MXN pair.
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