The Mexican peso gained on Friday after weaker US labour data pushed the US dollar lower, with USD/MXN trading near 17.18 after touching a five-month low of 17.09. In Mexico, inflation slowed to a six-year low, easing to 3.12% year on year in July from 3.37%, while core inflation printed at 3.95% against a 3.94% forecast. Banxico held its policy rate at 6.50% and pointed to a steady stance, while its projections see headline and underlying inflation at 3.5% in 2026 and convergence to the 3% target in the fourth quarter of 2027.
In the US, July Nonfarm Payrolls showed a 23K job loss versus an 80K gain forecast, and revisions to May and June reduced payrolls by 103,000, even as the unemployment rate edged down to 4.1% from 4.2%. The US Dollar Index fell 0.42% to 99.54. Technical levels cited include spot around 17.1364, a clustered SMA area near 17.4061 and resistance at 17.4584, while the RSI (14) stood at 32.4; downside reference points included 15.6962.
Carry Trade And Yield Differential Strategy
We should capitalize on the wide interest rate gap by entering long-peso carry trades through FX forward contracts. With the Bank of Mexico holding rates steady at 6.50% and the Fed pausing after a weak US jobs report, the yield differential strongly favors the peso. Historically, these wide rate spreads have driven sustained peso strength, making currency swaps an attractive tool for yield-seeking traders right now.
Tactical Positioning And Risk Management
Given that USD/MXN has broken below its key moving averages near 17.40, we recommend maintaining a bearish bias for the coming weeks. We can use bear-put spreads on USD/MXN to profit from further downside toward the 15.69 support zone while limiting our risk. This option strategy protects us if the market temporarily spikes back toward the resistance trendline at 17.45.
Because the daily Relative Strength Index is hovering near 32.4, we must prepare for a potential corrective bounce before the downtrend resumes. Instead of chasing the market at current lows near 17.13, we should set limit orders to sell USD/MXN on temporary rallies. This patient approach prevents us from getting caught in short-covering squeezes.
We must closely monitor the upcoming US inflation and jobless claims data, as well as Mexico’s Industrial Output, to adjust our derivative positions. A further drop in the US Dollar Index, which recently slipped to 99.54, will likely accelerate the peso’s gains. We can hedge these event risks by buying short-term straddles to benefit from any sudden volatility spikes.
