Markets are on tenterhooks in the lead up to the first US presidential debate, awaiting indications on whether Donald Trump really has a chance of winning November’s election. Some say a Trump victory would be bad for stocks and the US dollar, because he is an unknown quantity and many of his policies about the Fed, trade, and the economy seem so radical.
As the debate progresses, and then after the dust settles, traders will vote with their cash by buying or selling stocks, bonds and currencies.
So one of the best ways to gauge what traders are thinking about the outlook is to watch the movements in the US dollar Mexican peso rate (USD/MXN). That’s because one of Trump’s most aggressive policies is his plan to build a wall on the border with Mexico and make his southern neighbour for its construction. He’s also leery of the NAFTA, which has substantial benefits for the Mexican economy as well.
The peso has been under intense pressure recently and at around $MX19.92, it is trading at its weakest level against the US dollar on record. No doubt the second quarter’s -0.2% GDP print for Mexican growth and the associated slowdown in the economy over the past month has been some part of that weakness.
But many market pundits see the USD/MXN as a proxy for the chances of a Trump victory and what that might mean for the US’s southern neighbour’s economic outlook.
In the run-up to the debate, traders are selling the peso and buying dollars, putting upward pressure on the USD/MXN. That suggests there is a level of betting Trump could win the debate.
But the key to why the USD/MXN is worth watching is that the good thing about markets is that watching the price action, the moves, and the reactions helps eliminate political bias from any decision on who won the debate.
Business Insider Emails & Alerts
Site highlights each day to your inbox.