Mexican Peso underperformance linked to slowing US and elections – TDS

The Mexican Peso (MXN) collapsed vs. EM peers on the day Trump was elected in 2016. Economists at TD Securities analyze MXN outlook ahead of election noise.

Mexico will not be immune to a US slowdown

We expect a weaker USD in the medium-term which should help the Mexican Peso, but we expect it to underperform its EM peers like the BRL.

Mexico's economy is linked to the US outlook given deep trade and financial ties, with 80% of Mexican exports going to the US. MXN's returns can be explained primarily with US factors with local factors not adding any explanatory power. We expect the US to slow down towards the middle of this year.

US elections and Mexico elections this year will add noise to the MXN where a possible Trump re-election will bring trade noise for the country and make the MXN underperform peers.