MEXICO CITY — The Mexican peso rebounded on Tuesday from a record low, a sign investors may perceive Hillary Clinton outperformed Donald Trump in the first US presidential debate.
The currency rose 1.75 percent to 19.5354 per dollar as of early morning in London, the biggest gain across more than 140 currencies worldwide, after the debate concluded. In a CNN/ORC poll of debate watchers, 62 percent said Clinton won the exchange. The candidates clashed over trade, the economy and race relations. The peso was set for its biggest advance since Feb. 17, after it had borne the brunt of investor anxiety about the November election, sinking to an all-time low of 19.9333 before the clash between the US politicians.
“The peso, Canadian dollar, S&P futures, and Australian dollar are all surging — very much a relief rally in risk assets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “In FX markets, the most obvious trade to anticipate a Trump presidency is to short the peso.”
The bounce provides a respite for a currency that has posted the worst performance among its major peers in the past month, fueled by polls that showed Trump gaining ground on Clinton. It has lost about a third of its value in the past two years. While weak points in Mexico’s economy and emerging-market jitters are also contributing to bearish sentiment, traders and analysts say the recent slump is tied to the ascendancy of Trump, who has vowed to renegotiate the North American Free Trade Agreement if he wins.
“The stronger Hillary is, and the stronger the chance of her victory, the better for the peso,” Eduardo Suarez, a strategist at Bank of Nova Scotia in Toronto, said before the debate. He forecasts the peso will gain to 18.4 per dollar by the middle of next year.
One-month implied volatility on the peso, a measure of the cost of protection against future price swings, rose to the highest since November 2011 in the lead-up to the debate. Net short positions on the peso jumped more to a record high in the week ending Sept. 20, according to the Washington-based Commodity Futures Trading Commission. HSBC Holdings Plc says the peso could fall to 22 per dollar in the event of a Trump victory.
The currency has often declined when Trump’s odds improved, but tends not to gain as much on data favoring Clinton, according to Alejandro Padilla, a foreign-exchange strategist at Banorte-Ixe in Mexico City.
“A Trump victory went from being a tail risk to being a real possibility, at least according to the polls,” he said. “This is why the peso would depreciate significantly, as it was being used to hedge the elections.”
The peso hasn’t recently been driven primarily by economic fundamentals. It falls when Trump ascends in US election polls; it falls when wagers increase on higher US interest rates; and it falls when traders short the peso as a proxy bet that emerging markets are set for a decline.
“I shall not speculate on whether Clinton won or was Trumped, but clearly, the highest beta currency to a Trump victory thinks she did!,” Jeffrey Halley, market strategist at Oanda Corp. in Singapore, wrote in a note.
The peso’s real effective exchange rate — its trade-weighted value versus a basket of other major currencies, adjusted for inflation — shows it’s undervalued compared with historical norms, according to data from BIS.
“It’s like the bird that just can’t fly,” said Alejandro Silva, a money manager who helps oversee $180 million in assets for his Chicago-based Silva Capital Management, which sold 95 percent of its Mexican debt in May as the selloff picked up steam. “There are countries in which to invest that have macroeconomic problems, astounding deficit problems, inflation, some are in even in a recession, and they show less volatility than Mexico.”