The Mexican peso has been one of the better performing currencies against the US dollar YTD (+6.5%). Progress on the renegotiation of NAFTA has helped investor sentiment, and while agreement still needs to be reached on certain contentious issues, US Vice President Mike Pence commented at the Summit of the Americas: ‘I’ll leave this summit very hopeful that we are very close to a renegotiated Nafta’. That said, the Mexican peso has seen some selling into the end of this week perhaps as investors focus on the Mexican Presidential Election to be held on 1st July where the hard-left candidate Andrés Manuel López Obrador (often referred to as AMLO) is leading in the polls.
Brexit’s running for the most fruitless trade talks seems to have a contender in the Tratado de Libre Comercio de América del Norte - or more commonly known, to those of us not in the Spanish speaking world, as the North American Free Trade Agreement (NAFTA). The good news for Mexico (and for the US and Canada) is that at least NAFTA negotiations can be extended - as they were yesterday, to the first quarter of 2018. On news of this, the Mexican peso has rallied almost 2% from its weak point a couple of days ago.
Perhaps after the recent US healthcare reform debacle the realities of political office versus campaign rhetoric are hitting home for Donald Trump as his stance seems, for the moment at least, to be softening on a number of issues. He has repeatedly denounced NAFTA, the North American Free Trade Agreement, branding it a ‘disaster’, and threatened to withdraw from it without meaningful changes being agreed with Mexico and Canada. These comments and the withdrawal of the US from the Trans Pacific Partnership (TPP) earlier this year have seen forecasters elevate protectionism to a key risk to the global outlook.
In chess there is an opening pattern called the ‘Trompowsky Attack’, or more simply ‘Tromp’, in which both players end up making sacrifices very early on. Last weekend Magnus Carlson opened The World Championship in New York City with the ‘Tromp’ in homage to Trump who just days before and a few miles down the road celebrated becoming President-Elect. Befittingly this opening, as much as the president-elect, is unusual and offers no certain advantage to those that opted for it – indeed the game ended up as a draw.