Mexico’s export links to the US and high compliance with the USMCA have reduced the impact of recent US tariff shocks on Mexico and the peso. This has allowed Banxico to place more weight on weak domestic growth than on US trade policy when setting interest rates.
USMCA exemptions now cover a large share of trade, supporting continued flows across the border. US imports from Mexico from August to December last year rose slightly compared with the same period a year earlier.
Mexican exports to the US in 2025 increased by almost 6% year on year. Over the same period, Canadian exports to the US declined by almost 7%.
The peso’s strength last year was linked to these trade outcomes, and there is an expectation that exports will avoid a slump this year. If the conflict with Iran ends, USD/MXN may fall slightly.
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The resilience of the Mexican peso we saw throughout 2025 appears to be holding firm into this year. Recent data shows US imports from Mexico grew 4.5% year-over-year in the first two months of 2026, confirming that strong trade flows are continuing. This fundamental strength suggests that positioning for a stronger peso against the dollar is a sound strategy.
With exports secure, we see Banxico focusing more on Mexico’s internal economy rather than external trade risks. Mexico’s latest inflation print for March came in at 4.2%, continuing a slight cooling trend that gives the central bank room to maneuver on interest rates. This focus on domestic growth, rather than defending against US policy, provides a stable backdrop for the currency.
Given this steady outlook, traders could consider strategies that benefit from a gradual strengthening of the peso. Implied volatility on three-month USD/MXN options has fallen to its lowest level since we were in late 2025, making put options on the dollar relatively inexpensive. This offers a limited-risk way to position for a lower USD/MXN exchange rate in the coming weeks.
A potential near-term catalyst is the easing of geopolitical tensions related to the Iran conflict. We have seen recent diplomatic talks lower oil prices and improve sentiment for emerging market currencies. Should this de-escalation continue, we anticipate it will accelerate a downward move in the USD/MXN pair.
This environment also supports strategies using futures to lock in a lower USD/MXN rate. The current stability reminds us of what we saw in 2019 after the initial USMCA agreement was settled, where the peso strengthened steadily once major trade uncertainty was removed. We believe a similar dynamic is currently at play.
