Some EM currencies are performing very well against the USD. This is the case, for example, with the South African ZAR, and even more so with South American currencies such as the Mexican peso (MXN) and the Brazilian real (BRL).

The peso has returned to levels very close to those seen in 2023 and early 2024, when—after strengthening for four consecutive years—USDMXN reached a low of 16.26 and then spent several months trading around the 17 area. At yesterday’s close, the pair stood at 17.34, following a couple of positive sessions.

Mexico has sustainable public debt, a resilient financial system, historically high levels of foreign direct investment, and a strategic position within North American value chains. Continued nearshoring with the US and Canada, along with overall FDI inflows, drives strong demand for pesos, as companies convert dollars into pesos to pay workers and suppliers.

However, the carry trade remains the primary driver. Banxico has maintained a relatively high interest rate of around 7.00%, significantly above the US Federal Reserve’s rate of roughly 3.75%. This 3.25% yield gap makes Mexican assets attractive to investors, supporting the peso.

In 2025, gains against the USD amounted to 13.57%, with a further appreciation of 3.52% so far this year.

TECHNICAL ANALYSIS

USDMXN has a technical setup similar to the one observed a few weeks ago in USDNOK (which has since broken below the support level identified around 9.45). The pair is now trading close to a key support level at 17.10, which may act as a pivotal area for trading strategies.

The next key level is around 17.85, which serves as both a static resistance and the point where the current downtrend line passes. Between these levels lie the 21-day and 50-day moving averages, currently at 17.56 and 17.53 respectively, both relatively flat.

The RSI stands at 41, while the MACD remains negative, although the histogram appears close to turning positive.

In this context, broader USD weakness—also observed against the NOK and the BRL—supports the case for further downside. In both instances, recent lows have already been broken.

While these are distinct economies, this strengthens the case for a continuation of the downward move. If confirmed, the main downside targets are 16.78 and 16.53.