Goldman Sachs Defies Mexican Peso Bears, Forecasts 13% Rally

Updated on
  • Risk of U.S. protectionism priced to ‘significant’ extent: GS
  • Peso is the worst performer among 16 major currencies in 2017

Some Traders Say Mexico Should Buy Twitter

Against the most “Trumpian” of odds, Goldman Sachs Group Inc. is defying bearish bets and predicting Mexico’s peso will make a comeback this year.

The worst performer among the world’s 16 major currencies so far in 2017 will rally 13 percent to 19 per dollar over the next 12 months on the view that the protectionist impact of the new U.S. administration will be less severe than the rhetoric of President-elect Donald Trump. The currency touched a record low of 22.04 per dollar this week after he reiterated during a press conference that Mexico would be paying for a border wall and that companies that relocate operations there would have to pay a border tax.

“The dominance of the U.S. in Mexican exports means Mexico has the most to lose from U.S. protectionism,” Kamakshya Trivedi, the chief emerging-market macro strategist at Goldman Sachs in London, wrote in a note to clients. “But this risk is priced to a significant extent, and there is a good chance that worst-case scenarios are not realized and the MXN may benefit from stronger U.S. growth given a cheaper currency.”

Traders pushed up the value of global equities as bonds slumped on Friday after solid retail and consumer confidence data bolstered confidence in the world’s largest economy. Concern over Trump’s campaign promises sent the peso tumbling as the U.S. accounts for 80 percent of Mexican exports.

“So far the rhetoric has softened,” Mohamed El-Erian, Allianz SE’s chief economic adviser, said Friday in a Bloomberg Television interview. “And that’s why markets have embraced the pro-growth element and set aside the trade protectionism.”

El-Erian said investors willing to withstand short-term price swings would do well to bet on a rebound of currencies outside the world’s largest economies.

The median forecast of analysts compiled by Bloomberg shows the peso staying around current levels by the end of this year. The peso rose 1 percent to 21.5576 per dollar at 1:17 p.m. in New York.

— With assistance by Lisa Du, Lananh Nguyen, and Katherine Chiglinsky

(Updates with trading Friday, El-Erian’s comments.)
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