USD/MXN: Mexican Peso Gains Ground Following US Presidential Debate

The first of three US presidential debates between Hillary Clinton and Donald Trump had a major impact on the financial markets. Immediately after the debate, stock prices rose across the globe, while the US dollar also strengthened against most other currencies. The debate also provided a boost to the Mexican peso, which had declined sharply prior to the debate amid reports that Trump was gaining in the polls.[1]

The peso rose immediately after the September 27 showdown because the large majority of likely voters said Clinton had won the debate. For many traders, a Trump presidency could strain US-Mexico relations given the Republican’s proposal to build a wall along the US-Mexico border.

The USD/MXN exchange rate was trading at record highs on the day of the debate, reaching 19.8777. The pair would plunge more than 2% the following week. The pair closed at 19.34 on Friday. Since the beginning of the year, the dollar-peso exchange rate has gained more than 13%. By comparison, the US dollar has declined more than 3% against a basket of six currencies over the same period.

According to a post-debate poll by CNN, 62% of voters who tuned in to watch the debate said Clinton was the winner.[2] By comparison, only 27% said Trump was the stronger candidate.[3] A separate Gallup poll also showed that Clinton won by a large margin in terms of public perception.[4]

The Mexican currency has experienced greater volatility this year as a result of Trump’s candidacy. Trump has not only promised to build a wall that he claims Mexico will pay for, he has threatened to limit the amount of money Mexican nationals can transfer back tot heir home country, commonly referred to as remittances. According to Trump’s plan, the plan to limit remittances would be withdrawn if Mexico agreed to make a one-time payment of $5-10 billion to pay for the wall.

“It’s an easy decision for Mexico,” Trump said in a two-page memo that describes the plan. However, most economists believe that forcing Mexico to build a wall would strain relations between the long-term trading partners. It will also push Mexico’s economy deeper into despair, perhaps motivating more illegal immigrants to cross the border in search of better opportunities.

Strained relations could also negatively affect the US economy, impacting everything from tourism to labour. Experts are also quick to point out that erecting a wall isn’t as easy as it sounds. There’s a lot of land acquisition that would be required, especially on the Texas side of the border, where private citizens may request more money before selling their property to the US government.[5]

But traders expecting the peso to continue riding high should keep their optimism in check. The presidential race is far from over, and the first debate is by no means an accurate indicator of who will ultimately prevail. In fact, Republican candidate Mitt Romney gave Barack Obama a drubbing in the first presidential debate back in 2012.[6] We all know how that race eventually played out.

Clinton and Trump will meet for round two on October 9. The third and final debate will take place on October 19, mere weeks before the election.

The battle for the White House is expected to have a major impact on the financial markets, including the US dollar and other currencies. That’s because many traders are concerned about a Trump presidency. The markets appear to favour Clinton for no other reason than her status as an establishment, party-line candidate.

“From a market perspective, rightly or wrongly, there is an understanding that Mrs. Clinton would be a safe pair of hands, that there’s very little uncertainty there,” said Brad McMillan of Commonwealth Financial, as quoted by Reuters.

[1] John McCormick (September 26, 2016). “Trump, Clinton Deadlocked in Bloomberg Poll Before Key Debate.” Bloomberg.

[2] Bob Woodward and Robert Costa (April 5, 2016). “Trump reveals how he would force Mexico to pay for border wall.” The Washington Post.

[3] Jennifer Agiesta (September 27, 2016). “Post-debate poll: Hillary Clinton takes round one.” CNN.

[4] Rena Flores (September 30, 2016). “Gallup: Clinton beats Trump in first debate by a large margin.” CBS News.

[5] Miriam Valverde (July 26, 2016). “How Trump plans to build, and pay for, a wall along U.S.-Mexico border.” Politifact.

[6] Jennifer Agiesta (September 27, 2016). “Post-debate poll: Hillary Clinton takes round one.” CNN.

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