by Paulina Osorio
In the general elections in Mexico on 1 July 2018, voters elected a new President, along with hundreds of other national, state and local positions. It was one of the largest election days in Mexican history. A good portion of the 120 million inhabitants of Mexico eagerly anticipated the results, along with those in the financial markets across North America. The transition of power potentially could have significant implications for the financial markets in Latin America, and beyond. Historically, leadership transitions cause fluctuations in the currency market, especially in Mexico, given that the peso is one of the most actively traded emerging-market currencies.
Left-leaning Andres Manuel Lopez Obrador (AMLO) has become Mexico’s future president, having won the elections with a resounding 53 percent. The next closest candidate garnered 23 percent. This achievement is particularly meaningful as the left party hasn’t led the political scene in Mexico in at least 20 years.
Other factors affecting the currency market in Latin America, besides expectations around the new government, are strongly related to the United States. This has been reflected in the USD/MXN exchange rate with the currency pair hitting a new low after President Trump was elected. Since then the rate has been subject to volatility as a result of the statements and decisions mainly around the North American Trade Agreement (NAFTA). Not only is the US Mexico’s largest commercial partner but it also has one of the biggest trade exposures of the countries in the NAFTA agreement.
According to the credit rating agency S&P, “one of the biggest issues the new administration will face is the conclusions of the renegotiation of NAFTA, as the fate of this will have a large impact on Mexican politics and the economy. Despite of this, the new government also has substantial economic and political challenges to deal with.”
However, after hitting an 18-month low of 20.80 MXN to USD on June 18, 2018, it has appreciated post-election to 19.02 MXN to USD today. The appreciation was led by the new government statements about adopting a pro-market approach and working along with the business sector which as reported by Gabriela Siller, Chief Economist at Banco Base, a Mexican bank.
So far, the Mexican peso is resisting uncertainty surrounding the political landscape, but market participants are watching closely as the proposal implementation process unfolds. AMLO will take office December 1st. Stay tuned to the Fortex blog for updates on financial markets in LATAM and more.
A native of Mexico, Paulina Osorio heads up the Fortex office in Mexico City. Deeply familiar with the FX trading market in Mexico, before joining Fortex she helped grow the LATAM business for Thomson Reuters where she strengthened their FX franchise and established partnerships between the Mexican market and banks in the United States. Prior to that, she held roles in Commercial Banking, eFX Sales, and FX Sales for Global Banking & Markets at HSBC. She worked on the trading and sales desks where she executed day-to-day FX and Money Market trades for Global Banking and Markets’ clients. She can be contacted at [email protected].