US: After Hillary trumps Donald, Peso and Aussie rise - Westpac
Sean Callow, Research Analyst at Westpac, suggests that the US elections typically have a limited impact on FX markets but the 2016 presidential contest is no ordinary election and is having a strong impact on the global FX markets.
Key Quotes
“Republican nominee Donald Trump has made protectionist trade policies the foundation of his economic plan. Specifically, he repeatedly blames China and Mexico for job losses in US manufacturing. Official data shows manufacturing employment peaked in 1979 and has actually risen 333k since the 2012 election. But US job creation is very much focused in the services sector, so manufacturing jobs are an obvious point of attack for any opposition candidate in traditional manufacturing states such as Ohio.
Democratic nominee Hillary Clinton has moved away from the Obama administration on trade issues, now rejecting the Trans-Pacific Partnership in its current form. But her trade platform is clearly more centrist than Trump’s, including of course supporting the NAFTA agreement her husband championed in the 1990s. This raised the prospect that the currencies of NAFTA members would be sensitive to the possibility of a Trump presidency.
This week’s presidential debate provided the ideal test of whether MXN and CAD would react to a sharp change in probabilities for 8 Nov. Only about 15 minutes into the debate, the Mexican peso started to surge against the US dollar and it has barely paused since, having previously traded record lows near 20. It was a swift market judgement that Clinton was beating Trump easily in the debate.
It was not just MXN and CAD that rallied during the debate in hope that North American trade would remain largely free. US equity futures rallied, AUD/USD rose and safe haven JPY weakened. But the US political outlook is by no means clear for risk appetite. There are two more debates and plenty of wild cards ahead of 8 November, with the contest closer than many expected. Jitters could easily return.”