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Market cheered by Mexican election outcome, peso strengthens across the board

Monday 2nd July 2018

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The Mexican peso strengthened across the board in Asian trading after Mexican exit polls showed left-wing leader Andres Manuel Lopez Obrador winning Sunday’s presidential vote.

The peso traded at a month-high as at 2:30pm in Wellington of 19.6890 to the US dollar after the exit polls gave Lopez Obrador - who vowed to rid Mexico of corruption and lower its spiralling murder rate - a comfortable victory and the two other leading candidates conceded, according to the Financial Times. An official fast count is expected at around 0500 GMT. 

The New Zealand dollar, meanwhile, traded at 13.35 Mexican pesos, down around 0.8 percent in Asia. New Zealand counts Mexico as its 21st biggest market and the South Pacific nation's largest in Latin America with exports totalling some $770 million in the June 2017 year. Mexico is a member of the completed Comprehensive and Progressive Trans Pacific Partnership and is among four nations New Zealand would gain greater trade access to through that deal. New Zealand officials are also seeking a free trade agreement with the countries of the Pacific Alliance that include Chile, Colombia, Mexico, and Peru. 

While Lopez Obrador's victory could signal potentially far-reaching changes to the country's foreign policy - including charting a more distant relationship with the US at a time when the North American Free Trade Agreement is being renegotiated - Martin Rudings, senior dealer foreign exchange at OMF, said rather than focusing on what the vote means for business "the market is responding well to his aim to put an end to corruption and violence".

According to the human rights advocacy group Washington Office on Latin America, last year was Mexico’s most violent year on record, and seemingly endless corruption scandals have weakened public confidence in the Mexican government’s commitment to combating crime and violence and upholding the rule of law.

At least 14 former or current governors are currently under investigation for corruption, some of them for colluding with the organised crime groups that are largely responsible for Mexico's rising violence and in 2017, Mexico placed last among OECD countries in Transparency International’s Corruption Perceptions Index, with an overall ranking of 135 out of 180 countries, WOLA said. Also in 2017, Mexico registered its highest number of homicides on record, with more than 29,000 killings documented nationwide. 

Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney, said Lopez Obrador's stance on corruption was pushing the peso higher. A vote that was both good for Mexico and Mexican-US relations "may not necessarily be mutually achievable, but I think at least in the first instance the focus is on what Mexico looks like going forward," said Rennie.  


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