USD/MXN
The US Dollar spent most of the month of March rallying against the Mexican Peso as interest rates in America continue to climb and although they are lower than Mexico's interest rates, the reality is that the interest rate differential has been closing and with this being the case, it looks very much like a market that is trying to find some type of new equilibrium.
That being said, keep in mind that the pair does pay a positive swap if you buy Mexican Pesos and a negative one if you buy the US Dollar. Unfortunately for most carry traders, the negative swap has been the route going forward for the last several weeks.
The Carry Trade and Equilibrium
That being said, we are getting to the point where we have to question whether or not the interest rate differential has been priced in. I would suspect that the 18.50 Mexican Peso level above is going to be a bit of a barrier and therefore I don't look for the US Dollar to slice through that very easily.
There has been a lot of price action in that area previously, so this might just be a nice bounce and recovery before a continuation of the downtrend. That scenario plays out quite well if we do in fact get a bit of good news coming out of the Middle East because it will drive interest rates lower in the United States as the concerns about energy shocks might wear off.
Furthermore, Mexico is a net importer of energy so the situation in the Straits of Hormuz, although they may or may not directly influence Mexico depending on what fuel you are talking about, does add a level of instability to the Mexican economy.
Overall, I think this is a market that spends the first half of the month trying to grind higher and then perhaps due to some type of resolution in the Middle East we may see a fall. If the situation in the Middle East gets worse, then exotic currencies like the Mexican Peso will be shunned and not only will we test the 18.50 level, but we will also probably break above it.