Could Donald Trump be doing Mexico a huge favor? Or, a “yuge” favor, the way The Donald would say it.
The peso is gaining ground against the U.S. dollar while Donald Trump’s poll numbers are dropping. In fact, the peso has reached its strongest level against the dollar since the end of June.
Analysts see a causal link between the two. Analysts and traders are linking confidence in the Mexican economy with presidential polls in the United States, the Wall Street Journal says.
“The peso is rallying and, more importantly, it has more room to appreciate as [Democratic presidential nominee] Hillary Clinton continues to climb in the polls—gaining ground on Donald Trump, who has proposed policies that could potentially hurt Mexico’s economy,” Nomura Latin America strategist Benito Berber told the Journal.
The Mexican economy heavily relies on four sectors: oil exports, tourism, manufacturing exports and foreign remittances. The majority of Mexican exports — 77.5 percent — go to the U.S., partly because of NAFTA.
But Trump has placed the U.S.-Mexico economic relationship at the center of his campaign, promising to renegotiate NAFTA and detain remittances to force Mexico to pay for a border wall.
That would “deal a severe blow to Mexico’s economy,” say Morgan Stanley analysts.
In the four years of President Enrique Peña Nieto’s administration, the peso has fallen from 13 per dollar in December 2012 to 18 per dollar on Monday. However, the currency’s decline has not triggered the rise in inflation seen in previous devaluations, also partly because of NAFTA.
NAFTA essentially diversifies Mexico’s economy from a commodities exporter into a manufacturing exporter, which softens the link between exchange rates and inflation.
