Mexican Peso Gets Crushed as Lopez Obrador’s Election Lead Looks Untouchable

• April 23 2018
• Justin Villamil

Mexico’s peso is all of a sudden the worst performing major currency as investors begin to accept that the next president is likely to be the populist firebrand they feared.

Mexico’s peso is all of a sudden the worst performing major currency as investors begin to accept that the next president is likely to be the populist firebrand they feared.

It’s a stark reversal that took hold over the past week, coming after the peso posted the biggest global gains in the first quarter amid optimism the country would reach a favorable outcome in trade talks with the U.S. and Canada. Now, traders are refocusing on the political outlook before the July 1 election, and see Andres Manuel Lopez Obrador coasting to victory.

That view was cemented Sunday night during the first debate, when Lopez Obrador -- who is known for a quick temper -- played it safe as rivals attacked his security and economic policies. That disappointed investors who hoped the confrontations would make the front-runner stumble. Lopez Obrador now has a more than 20 percentage point lead over the No.2 candidate, Ricardo Anaya, who failed to inflict much in the way of damaging blows.

“Finally, it looks like it’s being priced in,” said Christian Lawrence, a currency strategist at Rabobank in New York. “International markets have woken up to the looming election.”

The peso has lost 4.7 percent over the past five days after it reached a six-month closing high April 16, and traded at about 18.9 per dollar as of 11:49 a.m. in New York. Investors are concerned that Lopez Obrador could move to roll back the historic opening of the country’s energy industry to foreign investment and that his pledges to increase social spending would blow out the budget deficit.

All About Mexico’s Populist Presidential Candidate: QuickTake

Before the recent selloff, the currency had gained 9.2 percent this year amid optimism officials would reach a deal on Nafta in the first half of the year even as Lopez Obrador had a steady lead in polls.

The Nafta outlook also suffered a fresh blow Monday after a tweet from Donald Trump in which he insisted Mexico needed to reinforce border security and said “we may make this a condition of the new NAFTA Agreement.” Also not helping matters were comments from central bank chief Alejandro Diaz de Leon, who ruled out intervention to support the peso.