Republican US presidential candidate Donald Trump’s threats to build walls and deport migrants as part of a generally radical rhetoric has made Mexico perhaps the most targeted audience in terms of consequence of the upcoming US elections.
The US is its largest trade partner by far, accounting for more than 70% of Mexico’s exports and more than 50% of imports. Mr Trump’s suggestion that Mexico must pay for a giant wall and that the trilateral free trade agreement that includes Canada must be renegotiated are some of the catalysts for the peso trading at its highest levels of implied volatility since 2011.
It is no secret Mexico’s economy is linked to movements in the oil price, and the low price combined with high levels of debt are ailing the country. However, it does not appear to be coincidence that, as recent polls have shown, Trump’s campaign gains momentum, the peso has weakened. Further evidence of the currency’s link to the US presidential election is the sudden strengthening in the currency which followed the first presidential debate.