It’s NAFTA to make you worry

While there is a general election in Mexico in 2018 it the politics of the United States that hold more of a sway over the economy and peso. These will solidify in March as the North American Free Trade Agreement negotiations begin. President Trump has threatened to withdraw from NAFTA unless he can rework it in favour of the United States, arguing that the pact has hollowed out U.S. manufacturing and caused a trade deficit of over $60 billion with Mexico. Talks so far have produced little light and MXN remains vulnerable to the Presidential Twitter.

The Mexican general election will hinge on the performance of Andrés Manuel López Obrador, a leftist populist politician currently polling at around 30%. Although we do not think that his Morena party will win, MXN is likely to be penalised in the lead-in to the vote on the basis that markets will view his leftist economic policies as unhelpful and detrimental to investment flows.

Source: Bloomberg