USD/MXN: the Trump factor and US elections - Nomura

Analysts at Nomura explained that the single-most important factor behind the MXN’s depreciation is the increased probability of a Trump victory in the last few weeks. A widening of the current account deficit, fiscal concerns and decreasing oil production also play a role - but they are marginal compared with the impact from the US election. Indeed, if Mr Trump were to implement the most extreme version of his views on economic policy, there could be unprecedented capital outflows from Mexico and concurrently significantly less inflows of
remittances in the short term. In the medium term, a potential deterioration in the trade relationship between the US and Mexico could depress potential GDP growth south of
the border.

We stand behind our MXN forecast (see ‘Mexico- MXN Under Pressure, 10 June) of 19.50 for Q3 2016 - reflecting the (apparently) tight race between Hillary Clinton and Donald Trump - and 17.50 by Q4 2016 reflecting the still higher probability of a Clinton victory. Embedded in our bullish year-end forecast is the view that the oil bidding rounds and Pemex farm-out, both in early December, will be successful.