In an election year full of surprises, you can follow the major polls to see who is likely to win the White House, or you can check the Mexican peso.
It moves with the perceived election chances of Republican candidate Donald Trump.
When news broke last Friday that the FBI was looking at new emails potentially tied to Democratic presidential candidate Hillary Clinton’s private server, the peso began sinking and lost 1 percent of its value against the U.S. dollar, a big one-day move for currency markets that move in fractions.
“We’ve definitely observed this, especially pronounced around some of the (presidential) debates and last Friday with some of the renewed uncertainty about the outcome,” said Erik Nelson, a currency analyst in New York for Wells Fargo Securities.
The peso’s value against the dollar hit a low for the year shortly before the first of three televised presidential debates and has since steadily climbed back against the dollar as Hillary Clinton held or widened her lead in the polls.
Here’s why the peso is a proxy for Trump’s chances: Thousands of U.S. companies make everything from auto parts to high-end flat-screen televisions in Mexico. Trump’s pledge to build a wall along the 2,000-mile southern border has offended Mexicans and unsettled the U.S. companies that do billions of dollars of commerce across that frontier.
Trump has also slammed the North American Free Trade Agreement, considered a huge success by the U.S. Chamber of Commerce and signed into law by Bill Clinton. Trump has pledged to force Canada and Mexico to renegotiate it for terms more favorable to manufacturers in the United States.
Mexico sends about three-quarters of its exports to the United States, so its currency tends to react to U.S. growth and other developments.
Erik Nelson, a currency analyst for Wells Fargo Securities in New York
“If it wasn’t Donald Trump and Hillary Clinton, I don’t think we’d be talking about the Mexican peso,” said William Frejlich, a veteran commodities trader for the PRICE Futures Group in Chicago.
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In the financial world, it’s not unusual for one traded item to become a proxy for something else. When inflation is a threat or there is financial panic, gold prices soar and gold serves as a proxy for market fears about inflation or collapsing stock prices.
The Mexican peso already serves as an indicator in matters having nothing to do with U.S. elections.
“It’s often used as proxy for other regional emerging-market assets. It trades 24 hours a day,” said Nelson, adding that a stock selloff in Brazil or economic problems elsewhere in Latin America can trigger price swings in the Mexican peso.
Kevin G. Hall: 202-383-6038, @KevinGHall
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