Mexico Peso battered by Trump twitter attacks – a new risk for traders?
US President-elect Donald Trump uses his Twitter account with great effect on one particular currency, MXN, and even the share prices of many large companies when they propose actions he disapproves of. Could the Trump Twitter effect be felt on other currencies in the future?
Trump seems to have little need for a publicity department. He routinely makes policy announcements or communicates his displeasure via Twitter. The impact is often market moving as can be seen on the value of securities in the car industry with the share prices of Ford, GM and Toyota all having been hit by his reprimands over their plans to build cars in Mexico for export to the US. Another victim was Boeing over Air Force One apparently being too expensive.
The Tweets aimed at the car makers had an immediate impact on MXN sending it tumbling versus the USD with the USD/MXN rate now well over 20.00. It took intervention from Mexico’s central bank to stop the sell-off becoming a rout. However, given that the US buys around 80% of Mexico’s exports, MXN looks like it will be in for a tough ride over the course of this year – especially as the country has been singled out by Trump as a destroyer of US jobs and a source of criminality.
Indeed, it’s entirely possible that USD/MXN could hit 25.00, particularly if Trump forces more US companies to repatriate work back home and imposes significant tariffs on Mexican imports. The hope for Mexico is that the realities of power, once he takes office, may see much of Trump’s threatening rhetoric not become policy.
The other country, which attracts Trump’s ire is China. However, the impact on USD/CNY is more muted given that China is a huge economy and has a very well diversified export base and still ‘controls’ its currency. One currency, which has benefited from the Trump effect, though probably less from his tweets is USD/RUB – on the prospect of a better US-Russia relationship, which could be good for Russia’s economy, particularly if trade sanctions are loosened.
The other currency that should benefit from the Trump effect, but so far doesn’t seem to have done so, is GBP/USD. He apparently views the UK very favourably and there’s an appetite for his administration to do a trade deal between the two countries. Any tweets to that effect could be a boost to GBP/USD as the UK scours for deeper trading partnerships outside Europe once it leaves the EU to reduce its dependence on that market.
As President-elect, Trump currently has a lot of freedom to express views and in the way, he conducts himself. On becoming president on Jan 20, that may change. He’ll have to work with his administration and Congress as he attempts to turn his rhetoric into actual policy.
There’s a chance, therefore, that his Twitter account may become a less controversial and news breaking with the White House press apparatus taking over and finessing some of the language. However, Trump is anything but predictable and promises a new style of populist presidency, so Twitter may continue to be his preferred medium to communicate with the world, which will rankle those in his administration, international partners and will be another source of volatility for markets including forex.
TECHNICAL ANALYSIS: USD/MXN – More losses due for Mexico’s currency
As of Friday, USD/MXN looked set for another upside stab with 22.00 looking like a real possibility within weeks, especially if more damaging Tweets emerge from US President elect, Donald Trump.
On Friday, USD/MXN looked on to be on the cusp of breaking out of a consolidation pattern dating back to Nov 10, when the pair hit a high of 21.3950. After unsuccessfully testing support at around 20.20, USD/MXN started moving decisively upwards. The daily RSI is coming out of over-bought – over-bought levels have previously been associated with the stalls in the USD/MXN rally.
Meanwhile, attempts by Mexico’s central bank to stop the rally look doomed. The effects of currency interventions have proved to be temporary as did interest rate rises, which become to be seen as desperation by the markets and can eventually prompt even more selling. Therefore, interventions are likely to be good opportunities to go long USD/MXN.
Nonetheless, this is a particularly news driven trade – so any sign of Trump softening his stance would likely see the USD/MXN reverse sharply. Support can be seen at 21.11, 20.77 and 20.20. with short-term resistance at 21.62 and around 22.00.
By Justin Pugsley, Markets Analyst, MahiFX