Mexican Peso Value to Rely on USA Economic Trends

MEXICAN PESA, USD, US-MEXICO TRADE RELATIONSHIP – THE CORE PERIMETER MODEL

Key Points:

  • The relations between Mexico and the US in the Core-Perimeter Model.
  • What is the Mexico-USA trade relations and why it’s important
  • How the Mexican peso trades against the USD?

How the USA-Mexico Relations Affects USD/MXN

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Mexico and the United States have a great economic relationship that is made stronger by close geographical proximity. The cross-border trade agreements such as NAFTA, that has recently been replaced by the new USCMA-reinforces the two countries’ trade relations. Nevertheless, the existing disparity in the current economic developments between the perimeter (Mexico) and the USA (core) crates great asymmetric relations.

As of today, the USA economy is the biggest economy across the globe, largely because its consumer-driven, which makes it less prone to the ups and downs of the trending global business cycles as opposed to Mexico’s economy, which is export-based. Moreover, the growth trajectory of Mexico is to a larger extent based on the increased demand from the USA. The United States have been found to account for about 86% of Mexico border sales.

Mexican-Peso-Outlook

So, if the economic overview for the USA is highly optimistic and demand for Mexican products rises, the expected rise of trade volume drives capital to start flowing to the perimeter from the core. This is extensively boosted by resources from investors that are out there searching for the cyclicality of the Mexican peso based goods outsized returns against the upbeat backdrop. US Dollar Slumps As Trump, Navarro Clarify US-China Trade Deal ‘Fully Intact’

When it comes to this setting, the current USD/MXN exchange rates essentially grow weak. The current dynamic is largely magnified by additional risk tolerance by the investors including those who might not be in a position to hold into the cycle-sensitive products in economically non-stable circumstances.

In case there is any interruption in economic development, the capital flow is reversed. The outcome is a more powerful USD/MXM exchange rate as the investors divest the risky assets in Mexico, which is the perimeter for parking the capital in the comparatively safe vessels in the United States (core). As of today, abundant liquidity reduces volatility during market turmoil.

Mexican-Peso

While the growth-disrupting catalysts come from the USA, investors prefer the United States treasury bonds and the USD to the Mexican equivalents.

Key Findings on Trading USD/MXN:

  • The Mexican peso is largely impacted by the USA business cycle due to the fundamentals of the globes largest economy and the country’s closer proximity.
  • The dynamic reverse if the economic activity in Mexico is interrupted and this puts Mexico’s growth trajectory in jeopardy.
  • If the growth overview is risk appetite and positive, capital often flows into the perimeter (Mexico) and the core (US).
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