Mexican peso in uncharted territory as Trump wins – Rabobank

Jane Foley, Senior FX Strategist at Rabobank, suggests that they have been more than vocal that this outcome would likely prove a negative for the Mexican economy given Trump’s protectionist stance.

Key Quotes

“Over 25% Mexico's GDP is comprised of exports to the US and record high remittances have been a key support for domestic demand. Trump’s rhetoric regarding NAFTA which he called “ the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country” and said that he would “entirely renegotiate NAFTA” or would “terminate it” as well as his comments on remittances are a clear concern for Mexico. If Trump is able to follow through with these suggestions, Mexican activity will suffer greatly. Speaking from a global perspective, this clearly marks a major milestone in the anti-globalization movement.

Our continuous repetition of about the importance of these elections for USD/MXN, the relationship between Trump’s performance in the polls and USD/MXN has been key since Q2 of this year. We have stressed this as the most important driver of price action of late and the result will be no exception. As we have noted over recent months, USD/MXN can now wave its teenage years goodbye. USD/MXN broke the 20 handle and although there has been a pullback from the intraday record high of 20.7818 this morning, we expect it to target 23 going forward. Of course, there is still much uncertainty and until we have a proper grasp of Trump’s plans and timeline in terms of any actions relating to trade with Mexico or remittances, it is fair to say there is much volatility expected around our end of period forecasts.

Indeed, we should expect price action to be extremely choppy over the coming days while volatility and uncertainty in USD/MXN is likely to rise meaningfully going into next year.”