The Mexican Peso (MXN) is stabilizing after a turbulent post-election period, with several market analysts predicting a rebound due to the currency’s attractive interest rate differential and carry trade potential. Despite the recent volatility, the MXN remains a compelling investment option for those seeking higher yields.

Analysts Forecast MXN Strength

Rabobank analysts foresee the USD/MXN pair retreating towards the 17.80 region, potentially reaching as low as 17.20 if volatility subsides. They emphasize that the MXN remains the most attractive carry trade currency globally, even after adjusting for recent volatility.

Bartosz Sawicki, a top MXN forecaster at Cinkciarz.pl, echoes this sentiment, predicting a correction back to 17.00 in USD/MXN. He attributes this potential rebound to the Bank of Mexico’s (Banxico) commitment to maintaining high interest rates, which remains a significant draw for investors seeking yield.

Risks and Challenges

While the short-term outlook for the MXN appears positive, longer-term risks remain. The upcoming US Presidential elections in November pose a significant risk event, with a potential Donald Trump victory potentially undermining trade and immigration agreements between the two countries.

Additionally, the broader shift in investor sentiment away from emerging markets, particularly following recent elections in India and South Africa, could present challenges for the MXN.

Technical Analysis: USD/MXN Stabilizes After Pullback

The USD/MXN pair is consolidating after retracing from its June 12th peak of 18.99. While further correction is possible, the short and medium-term trends remain bullish, suggesting an eventual resumption of the uptrend, potentially targeting the March 2023 high of 19.22.

The Relative Strength Index (RSI) exiting the overbought zone indicates a potential for a deeper correction, but the established uptrend is likely to reassert itself. However, the long-term trend remains uncertain after the break above the October 2023 high.