THE U.S. DOLLAR/MEXICAN PESO
The Mexican Peso is obviously not on the top of most traders’ list. But overlooking this currency, paired with the USD, can be a major mistake. Below you will find all the information you need to start trading the USD/MXN.
WHO SHOULD CONSIDER TRADING THE U.S. DOLLAR/MEXICAN PESO?
Traders interested in hedging their bets can take the Dollar/Peso into consideration. Hedging allows traders to minimise their exposure to unexpected consequences and volatile markets.
Anyone who has strong opinions about North American markets. Betting on a specific currency is the equivalent of showing confidence or lack of confidence in a specific economy.
Day traders who are searching for investment opportunities and are considering currencies as a possibility.
THE DOLLAR/PESO: A QUICK OVERVIEW
The US Dollar and the Mexican Peso might both be used on the same continent, but that is where the similarities come to an end. The USD is the reserve currency of the global markets, while the MXN has been struggling for decades. Despite their differences, both countries are interlinked due to the highly controversial free trade agreement known as NAFTA. (North American Free Trade Agreement)
WHAT YOU NEED TO KNOW ABOUT THE US DOLLAR AND THE PESO
The Mexican Peso become the official currency of Mexico after the country gained independence from Spain in 1821. The American Dollar was declared the country’s national currency in 1775, even though the United States officially became an independent country after the signing of the Declaration of Independence in 1776.
Both currencies started from humble roots until World War II, when the United States became the largest economy in the world. It was then that the Dollar reached new heights.
HOW HAVE BOTH CURRENCIES PERFORMED AGAINST EACH OTHER FOR THE PAST DECADE?
Over the last decade, the Mexican Peso has seen its value drop against a stronger American Dollar. In early 2009, a single US Dollar was worth almost 15 Pesos. But over the last several years, its value fluctuated between 18 and 20 Pesos.
Gang violence and corruption in Mexico have hurt the Peso considerably. The country’s social uncertainty and rampant corruption have stifled its growth, while the United States continues to be the financial leader of the free markets. The free trade agreement has arguably not been beneficial to Mexico, though this is sometimes disputed by American politicians. Some argue that the free trade agreement, which also includes Canada, places the United States at a disadvantage. If that is the case, then Mexico has yet to take advantage of it.
WHAT ARE SOME OF THE MAJOR REASONS FOR MOVEMENT IN THE USD/MXN PESO?
With such close ties between the two countries, the warm but sometimes strenuous relationship can have a massive impact on the currency pair. One example is a Donald Trump tweet about building a wall between the US and Mexican border. Another example is the desire of the US administration to make changes to the NAFTA agreement.
Cross border movement can also cause volatility at times. These include migration from Mexico into the United States or an American company opening a new factory in Mexico, just to name a few examples.
WHAT ARE SOME KEY REASONS TO TRADE THE USD MXN?
Buying and selling currencies has never been easier. The currency market is the most liquid market in the world, ensuring that any trader who wishes to partake in the market is always able to do so. Unlike stocks, where a buyer or seller must be found, the currency market is always available to everyone.
The US market is perhaps the easiest one to follow of any of the major markets. News outlets provide traders with unlimited amounts of information. The only challenge is how to separate the abundance of information into the most pertinent and the less relevant.
IMPORTANT FOR ALL TRADERS TO CONSIDER
There are signs that the United States is beginning to abandon the idea of globalisation at any cost. Globalisation is a trend that has dominated Western countries over the last several decades. However, it appears that President Donald Trump is not keen on the idea. It remains to be seen what impact this will have on the Dollar.
After years of low interest, the Federal Reserve appears to have changed course and is now increasing rates. This could be the most important single factor that determines the behavior of the currency pair.
Balance of trade is also a crucial factor. It compares the amount of goods and services exported and imported by a country. Since both countries rely heavily on trade with each other, tracking the balance of trade can be extremely important.
IS TRADING THE USDMXN PESO RIGHT FOR ME?
The short answer is yes. Trading currencies and other financial assets online is available to everyone. While people may be better positioned to succeed for a variety of reasons, there is no indication that new traders with less experience can’t position themselves to take advantage of opportunities.
*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you’re prepared to lose.