Mexico has hinted that it is not afraid of a trade war with the U.S. However, its economy would suffer significantly from the 25% import tariffs imposed by the U.S. Let’s discuss it and make a trading plan for USDMXN.
The article covers the following subjects:
Major Takeaways
- Trump’s 25% tariff threats have sent USDMXN higher.
- The Republican’s “great conversation” with Claudia Sheinbaum has boosted the peso.
- Mexico’s economy will be significantly damaged by tariffs.
- USDMXN risks rising to 21.3 and 22.2
Monthly Fundamental Forecast for Mexican Peso
“Trump wants something from Mexico,” said traders, prompting a rush to sell the peso. As Trump threatens to impose 25% tariffs on neighboring countries, USDMXN quotes have soared 2.5%, pushing above the peak reached on the day the Republican was announced the election winner. However, the bears managed to claw back some of the losses after the new president mentioned “the great conversation” with Claudia Sheinbaum.
It’s not hard to understand what Donald Trump wants from Mexico – a repeat of May 2019, when a similar social media announcement about a 5% tariff forced then-president Andrés Manuel López Obrador to strengthen migration control on Mexico’s borders. The flow of people seeking to live in the United States significantly decreased, the tariff threat was lifted, and the 45th U.S. president signed the USMCA. As a result, Mexico outperformed China on the list of the largest importers to the U.S.
Dynamics of Imports to the USA
Source: Financial Times.
Claudia Sheinbaum proved to be less soft-hearted than her predecessor. She stated immediately that mutual tariffs between countries would do nothing good. Mexico has no intention of closing its borders; instead, it aims to foster connections and cooperation between nations. Local economists’ analysis has shown that implementing Donald Trump’s threats could result in the loss of 400,000 jobs in the U.S. and a sharp rise in inflation.
U.S. Trade Structure
Source: Bloomberg.
Indeed, a third of Mexican auto exports to the United States are related to auto parts, and rising prices for these will hit the American auto industry hard. The same applies to the oil industry, which imports 8.3 million barrels daily, 70% of which come from Canada and Mexico.
However, the losses to the Mexican economy could be far more severe. The United States accounts for 83% of Mexico’s exports, $236 billion in direct investment, and $63 billion in remittances from Mexicans working in the U.S. If Donald Trump implements his threats, Mexico’s GDP could shrink by 11%, according to Bloomberg’s estimates. Based on Moody’s Analytics, even partial tariffs would slow Mexico’s economy to 0.6% in 2025, representing the weakest growth since the pandemic. S&P Global Ratings has also downgraded its forecast from 1.5% to 1.2% – half of the government’s expectations.
Monthly Trading Plan for USD/MXN
Even the presence of threats, rather than their implementation, will reduce foreign investment and keep the peso volatility high – bad news for the risky currency. Coupled with Banxico’s intention to accelerate the monetary expansion cycle, the growing risks of trade wars between Washington and Mexico will send USDMXN higher. The current upside resumption is a perfect opportunity to build up the longs opened at 19.75. The medium-term targets are 21.3 and 22.2.
Price chart of USDMXN in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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