Mexican peso in for a rough ride over US election
By Noe Torres
MEXICO CITY, Oct 30 (Reuters) -Mexico's peso currency is trading within a narrow range ahead of the U.S. election as traders position themselves for a possible victory for former President Donald Trump, although analysts say the market continues to hedge its bets over who will win.
Recent U.S. polling points to a neck and neck race on Nov. 5, with betting markets putting Republican Trump just ahead of Democratic Vice President Kamala Harris.
A victory for Trump would quickly weaken the peso to more than 21 per U.S. dollar, levels not seen in more than two years, according to analysts.
Investors fear Trump would make good on campaign pledges to slap tariffs on products like autos coming from Mexico, implementing a protectionist stance that toughens the 2026 revision of the USMCA North American trade pact between Mexico, Canada and the U.S.
Since mid-October, the peso, the most liquid currency in Latin America, has fluctuated around the psychological barrier of 20 per U.S. dollar, still far from a historic low of 25 per U.S. dollar during the coronavirus pandemic. It also remains far below a high of 16.50 per U.S. dollar seen in the first half of this year.
Analysts said the peso is expected to hover around 20 per U.S. dollar until U.S. election day, after which it will likely swing.
Trump's presidential victory in 2016 provoked a sudden depreciation of the peso of about 13.5%. Experts so far have not predicted a similarly dramatic blow this time, though everything rides on election results and early statements by the winner.
Some experts said the peso's current levels already price in a possible Trump victory, which would soften the blow compared to 2016 when his win shocked markets.
"Everyone thinks that Trump can harm the Mexican economy, but that discourse has already diminished compared to his first term," said Jacobo Rodriguez, financial specialist at Roga Capital.
"We realized that although (Trump) is quite strident, at the end of the day he is open to negotiating and reaching agreements," Rodriguez added.
INTERVENTION
Market watchers predict a Harris victory would boost the peso to about 18.50 per dollar, although many expect her to pursue relatively protectionist policies too.
"She does not have these types of aggressive and volatile strategies and, therefore, we would expect a little more continuity and less noise with her which will be positive for the currency," said Erick Martinez, exchange rate strategist at Barclays.
A worst-scenario would be a very tight victory for Harris with Trump challenging the election results, unleashing a period of uncertainty that would exacerbate volatility for the peso.
If Trump wins, and doubles down on radical rhetoric against Mexico, it could also provoke a major shock to the peso, analysts said.
The Mexican Exchange Commission could be forced to intervene in the market, as it did at the beginning of 2017 when it sold dollars directly to banking institutions.
"It is a scenario," said Marco Oviedo, senior strategist for Latin America at the firm XP Investments, about a possible market intervention. "It will depend on how badly the market behaves," he added.
GRAPHIC-LatAm FX relative performance since Mexican election https://reut.rs/4f9VF7N
Reporting by Noe Torres, editing by Diego Ore, writing by Cassandra Garrison; Editing by David Gregorio
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