MEXICO ELECTIONS: Risky times ahead for USD/MXN based on the weekend's outcome

On Sunday, June 2nd, Mexico will hold general elections for President, the Chamber of Deputies, and the Senate. In the Presidential race, Claudia Sheinbaum considered AMLO’s continuation under different leadership as very likely to win, but the more important outcome to monitor is just how strong a victory it could turn out for the Morena political party they represent.

If Morena and allies reach a supermajority, it could mean a push for very controversial reforms that Western markets wouldn't welcome since they would put banks and big industry on edge. This could knock Peso down quite a bit since moves have recently represented swings as high as 3.0% month-to-month. Volatility remains even if Claudia S. wins, but it will all come down to full acceptance by the opposition, and if there is somehow a smooth transition of power. Political turbulence should be avoided not to exacerbate already heated tensions in Latin America.

The Peso has been strong based on the growth spurred by recent years of allowing foreign investment and cooperating closer than ever with American private interests. Anything suggesting a break from that would be catastrophic for the Peso, while a continuation could keep value in favorable ranges against the Buck. The remainder of the year has MXN with room to grow if the economics play out to be divergent from other regions where growth is harder to come by. Banxico keeping a steady hand and cutting rates based on data will also be a source of balance for MXN.

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