If the value of the Mexican peso is so highly correlated with the political circus in the US, then a rational decision would be to buy Mexican Pesos, understanding that Clinton still has the lead in the polls. In fact, it is Trump that has to pull a miracle off to become the 45th president of the United States of America. Therefore, the political risk of buying Mexican pesos vis-à-vis the elections in the US is still considerably low, even though it rose over the last few days.
This should lead analysts to believe that there is much more behind the sudden depreciation of the Mexican currency than just concerns over Clinton’s health. One of the factors that could have contributed to the recent plunge, is the sharp decrease in the price of oil over the last week. Oil is one of Mexico’s main exports, making its currency very sensitive to a sustained retreat in oil prices. The decline in the price of oil may be partially due to the general strengthening of the USD, which has a lot more to do with interest rates in the US, Europe, Japan and other significant economic actors. The Fed opted to leave interest rates at 0.5%, so the Mexican peso will have another factor in its favor to recover from Clinton’s pneumonia.
Nevertheless, judging by the degree of diversification in the Mexican economy, any slump in oil prices that would weaken the country’s currency, should not prevail over the long term. A weaker peso allows Mexican exports to be cheaper, incentivizing US imports of all kinds of products from avocado to car parts. Given that the political situation will not change in the short term either, even if Trump is elected, the Mexican peso should recover through an increase of exports.
Clinton’s health issues should only be part of the story that has led to the sudden weakening of the Mexican peso. But even if it was the main driver behind this sudden plunge, then investors should still be willing to place their faith in the polls – which Clinton still leads – and on the wonders of medical science, which should augur a quick recovery for Clinton, and perhaps for the Mexican peso as well.
