Many Latin American traders look only at the chart of their pair. But behind almost every big move of the dollar against a currency in the region there is one word: rates.
The carry trade in two minutes
Imagine you can borrow in dollars at 4% and deposit in Mexican pesos or reais at 6–10%. You earn the difference. That is the carry trade, and the big funds do it with billions.
As long as the differential is large and the local currency is stable, money flows in and the currency strengthens. When the Fed raises rates or the local central bank cuts them, the differential narrows, the trade stops making sense and money flows out. The dollar rises, sometimes very fast.
A current example
In September 2026 the Fed raised its rate to the 3.75%–4.00% range, while Banxico held its own at 6.50%. The differential narrowed, and over the following weeks the dollar went from under 17 to over 18 pesos. It is not the only cause, but it is one of the most important.
What to watch in each country
- Mexico: Banxico’s decisions and the minutes, where you can see whether the board is leaning toward cuts.
- Brazil: the Selic rate set by the Copom. Brazil usually has high rates; any change in tone moves the real.
- Colombia, Chile, Peru: the local central banks, but also the prices of their commodities (oil, copper).
- United States: the Fed and inflation data (CPI). This moves everyone at once.
How I use it in my trading
Rates give me the underlying direction, not the entry point. If the differential is narrowing, I prefer to look for dollar buys against the local currency and not fight the current. I look for the entry on the chart: levels, breakouts with a retest and a clear plan for when price goes against me: a stop loss or a position size so small that it lets me wait.
And on the day of the rate decision I don’t improvise: either I’m out, or I have a stop placed in advance, or a position so small that a sudden jump doesn’t knock me out of the market. Central bank news is among the events that generate the most slippage.
Where to trade
These are the brokers and exchanges I use that work with clients from Latin America. Always check that the service is available in your country and start small.
Risk warning: CFDs, Forex and crypto derivatives carry a high risk of losing money due to leverage. This article is not investment advice.
