Mexican Peso Extends Drop as Poll Shows Trump Leads in Florida

  • Florida is must-win state for Trump in U.S. elections
  • Nordea says peso could fall to 20 per dollar if polls tighten

The Mexican peso extended losses following its biggest one-day drop in a month after a Bloomberg poll showed Donald Trump leading in Florida, a battleground state in the U.S. presidential election.

The peso declined 0.5 percent to 18.7820 per dollar as of 12:03 p.m. in Hong Kong, the biggest drop after South Korea’s won among emerging-market currencies. It sank 0.9 percent Wednesday. The Republican presidential nominee has 45 percent support, ahead of Democrat Hillary Clinton’s 43 percent, among likely Florida voters when third-party candidates are included, a Bloomberg Politics poll showed. His advantage was within the margin of error.

The peso has become a proxy for the outcome of the U.S. presidential election as traders use it to hedge global risks and because of concern that a victory by Trump, who has pledged to renegotiate the countries’ free-trade agreement, could severely damage Mexico’s economy. Recent polls showing Clinton gaining an overall advantage have boosted the currency, which is the second-best performer in emerging markets this month after a video was released in which the Republican candidate was heard bragging about groping women.

“The Bloomberg poll that came out yesterday caught some significant headlines,” said Stephen Innes, a senior trader at Oanda Asia Pacific Pte in Singapore. “The uncertainty that’s surrounding the upcoming election has traders sort of guarded.”

The peso posted the worst loss among major currencies in September as polls showed Trump gaining on Clinton. In the week prior to the first presidential debate, net short positions on the peso jumped to the highest in more than 20 years of data. Bearish wagers have since retreated.

While the peso’s real effective exchange rate -- its trade-weighted value versus a basket of other major currencies, adjusted for inflation -- is about 9 percent below the five-year average, the currency has strengthened since the Trump video was released as polls show an increasing likelihood that Clinton will win. Election forecast website FiveThirtyEight gives Clinton an 85 percent chance of victory.

“Anything that increases the likelihood of Trump winning is of course negative for the peso,” said Anders Svendsen, an analyst at Nordea Bank A/S in Copenhagen “If polls start showing again that it will be close, I think we could head back toward 20 per dollar.”

The peso has morphed into the world’s third-most volatile major currency this year, after being absent from the top five in 2015. Nomura Holdings Inc. has said the peso could strengthen to 17.3 per dollar if Clinton wins, while Banco Itau sees a gain to 17.5.

While Societe Generale SA also says the peso may gain to 17.5 if Trump is defeated, Jason Daw, the bank’s Singapore-based head of emerging-market currency strategy, says the risks are asymmetric: a Trump victory would send the peso tumbling past 20 per dollar.

“This would be a shock to currency markets, especially since Clinton maintains a sizable lead in most polls,” he wrote in a note to clients.

— With assistance by Eric Martin

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