USD/MXN Price Analysis: Mexican Peso sees an oversold bounce
- Mexican Peso is witnessing a chart-driven bounce a day after hitting record lows.
- The Bank of Mexico's intervention failed to put a floor under peso last week.
The Mexican Peso (MXN) is showing signs of life at press time, having dropped to record lows on Monday.
The local currency is currently trading at 22.5293 per US dollar, representing a 1.4% gain on the day.
The recovery from the record low of 23.079 reached during Monday's US trading hours could be termed as an oversold bounce - a rally that occurs due to the preceding sell-off being perceived as too severe. Notably, USD/MXN's 14-day relative strength index (RSI) had risen to a record high of 92.27 on Monday, indicating extreme oversold conditions in the peso market.
Down 24% in four weeks
The coronavirus pandemic and the resulting fears of a global recession have taken a heavy toll on the Mexican peso over the last four weeks. At the lifetime low of 23.079 per US dollar, the Mexican currency was down more than 24 percent from the high of 18.5525 registered on Feb. 20.
Last week's oil market sell-off, which was triggered by the news of a price war between Saudi Arabia and Russia, also added to the bearish pressure around the peso.
Bank of México Governor Alejandro Díaz de León said Friday that policymakers could intervene in the forex markets to stall the slide in the peso but added that foreign-exchange hedge auctions would be preferred over dollar selling in the spot as the former won't deplete Mexico’s international reserves.
The central bank did offer $2 billion worth of foreign exchange hedges on Thursday, its first intervention since 2017, but that failed to put a floor under the MXN. Federal Reserve's emergency rate announcement on Monday also failed to weaken the US dollar. If the Mexican currency continues to slide, the Bank of México may do more to “calm markets and rein in excessive swings” in the value of the peso.