MEXICO CITY: Mexico’s peso would take a bigger hit if US President Donald Trump kills NAFTA than from an election victory for the country’s left-wing presidential hopeful, while a combination of both would drive it near record lows, a Reuters poll showed.
The peso would slide to 20 against the dollar if the North American Free Trade Agreement (NAFTA) collapses, while it would sink to 19.5 per dollar if Andres Manuel Lopez Obrador takes the presidency and the trade deal survives, according to the median view of 17 strategists, analysts and foreign exchange traders.
If Lopez Obrador wins and NAFTA falls apart, the peso would hit 21.5, slightly above the peso’s all-time low of 22 against
the dollar, reached on Jan. 11, 2017, shortly before US President Donald Trump’s inauguration.
That would represent a 8.4 percent depreciation from the peso’s rate at the end of 2017.
Over the five years of President Enrique Pena Nieto’s administration, the peso has depreciated more than 30 percent. The peso was trading Monday at 18.6 per dollar.
Trump has repeatedly threatened to pull out of NAFTA, which underpins much of the more than $1 trillion in annual trilateral trade among Canada, Mexico and the United States. The three countries are meeting for talks about the pact in Montreal this week.
In another recent Reuters survey most economists consulted expect NAFTA to be successfully renegotiated.
Lopez Obrador, who leads most polls ahead of the election in July, is seen by some investors as a risk because of uncertainty about his plans for Pena Nieto’s economic reforms and the possibility that he would impose nationalist policies.
He has promised to boost spending on infrastructure and social programs without damaging macroeconomic stability, with funding from savings made through a clampdown on corruption.
“What they (investors) fear is that (Lopez Obrador) will not maintain a prudent fiscal policy,” one poll participant said.
The former Mexico City mayor, who is seeking the presidency for the third time, has tempered his rhetoric in recent months, suggesting he would not deviate significantly from the government’s economic policies.
“A victory by Lopez Obrador could even be positive if it is a confirmation the institutions work,” said another participant in the poll, who praised the experience of some members of Lopez Obrador’s possible cabinet, including the economist Carlos Urzua who would be finance minister.
If Lopez Obrador loses and NAFTA is successfully renegotiated, the peso will strengthen to 18 per dollar, according to the poll.
Source: Brecorder.com
