Mexico Is Feeling Some Trump Heat

Posted Wednesday, November 9, 2016 by
Skerdian Meta • 2 min read

If you followed the Mexican Peso (MXN) during the US electoral campaign, you must have definitely noticed the price action in the MXN pairs. Whenever Trump accelerated in the polls, the MXN would fall and when it was Clinton´s turn to move further ahead, the Peso would normally fall.

Last week after the FBI opened Clinton´s email case, the sentiment turned really bearish for the USD, but more so for the MXN. Although last Friday the case was closed,  over the weekend MXN surged back up again, meaning MXN/USD tumbled many cents lower.  This morning though, you can see USD/MXN nearly reached 21; that's losing more than 25% of its (MXN) value in just a few hours.

The world complains about low inflation, but looking at the USD/MXN chart we can say that Mexico won´t

Mexico is heavily dependent on the US. The US is Mexico´s first trading partner, including both imports and exports, so whatever happens with the US economy will soon spill into Mexico. But it´s not the US economy and its impact on Mexico that the market is worried about; the market is mostly concerned about Trump´s comments regarding Mexican immigrants.

Trump promised to send back all illegal Mexicans and build a wall on the Mexican border. That would be catastrophic for Mexico. Alright, no action of such scale can be undertaken or be implemented in full, but that would still be deadly for the fragile Mexican economy. That would make people even more desperate to sneak into the US, but that´s a bad thing for Mexico and that´s the reason the MXN has lost its head.

The chairman of the Mexican Central Bank is surely feeling the pressure building up because he popped up a while ago saying that they will take the appropriate steps to maintain healthy inflation levels. If that´s the case, then I expect a rate hike from them in order to counterbalance the effects of the freefalling MXN. Their problem now is hyperinflation; cheaper Peso means higher prices.

The funniest part of all this hullabaloo today was when the Mexican foreign minister said that they won´t pay for the wall between the two countries. I guess he took very seriously all of Trump´s comments. Well, he can look at the positive aspect of all this. If Trump builds a wall, I´m sure the labor force will be from Mexico, which can compensate lost revenues from remittances. 

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