Donald Trump is pledging to change America’s trade policy with Mexico and it’s sending investors away from Mexico. Trump’s presidency will most likely end Mexico’s privileged status among other developing countries. Now the Peso is in a free fall!
From The Wall Street Journal:
The Mexican currency weakened 0.3%—at 21.8609 from 21.8009 late Tuesday—again frustrating Mexican central-bank efforts to slow the currency’s decline. Bank officials said Tuesday that they spent $2 billion last week to prop up the peso, which has weakened 16% against the dollar since the U.S. election.
The selloff underscores fears that the economic gains Mexico has made over the past two decades could reverse, as the incoming Trump administration takes a confrontational stance that could bring tariffs and border-control measures that once appeared unthinkable.
The North American Free Trade Agreement, which in 1994 created a free-trade zone among Mexico, the U.S. and Canada, cracked open the American consumer market to Mexican businesses in a way no other emerging market has ever enjoyed. Nafta has also brought relative stability to the peso after a series of currency crises, a crucial factor in reassuring foreign buyers of Mexican bonds and other assets.
Now, that advantage could be in jeopardy if Mr. Trump follows through on pledges to renegotiate the agreement. Mexico’s benchmark stock index has dropped 5.2% since the U.S. election through Wednesday. Yields on 10-year Mexican government debt, which move in the opposite direction of price, jumped to 7.689% from about 6% before Mr. Trump’s victory. Mexican asset prices could come under further pressure in coming weeks, analysts and investors said, as the administration’s nominees to government positions spell out their positions in testimony before Congress.
“A renegotiation of Nafta would basically kill Mexico’s growth model,” said Juan Carlos Rodado, director of Latin American research at investment bank Natixis. “This would be very bad for investor confidence.”