I told you so!
Just two weeks ago I warned that if Donald Trump won the U.S. election, the Mexican peso would take a bad walloping and that devaluation would soar to the moon.
It is happening. Last Friday Mexico’s Central Bank (Banxico) quoted that the dollar closed at 20.94 pesos, with the peso losing 2.03 percent of its value that day.
Yet at exchange houses, the dollar was selling for as much as 21.20 since Thursday. But early morning Monday Nov. 14, the rate dropped a bit as the bellwether exchange houses at the Mexico City International Airport was selling it at 20.70, while they were buying it at 19.34.
In total, the peso is undergoing the worst slippage since 2008 when Obama arrived in power and the markets also felt the jitters.
It is no consolation for Mexicans but several other currencies are worse off, particularly the South African rand and the Brazilian real with steep falls of 5.02 and 4.79 percent. India and Malaysia are also suffering from high volatility.
Immediately after Trump’s victory last Wednesday Banxico president Agustín Carstens and Mexico Treasury and Public Finance Secretary (SHCP) José Antonio Meade Kuribreña held a press conference in hopes that the victory wouldn’t rattle the exchange market, but to no avail.
Trump instills fear in the hearts of Mexicans and there is no joy in the nation with his arrival at the helm of the USA.
Secretary Meade Kuribreña warned that the government would not immediately apply “measures” to stabilize the exchange rate. These measures usually include that Banxico pumps some $400 million into the market to make dollars available. These measures, however, have had the effect of depleting Mexico’s international reserves which have gone from $198 billion when President Enrique Peña Nieto was sworn in on Dec. 1, 2012, down to $76 billion last week, a net loss of approximately $24 billion.
The biggest fears in store are over what will happen to the North American Free Trade Agreement (NAFTA) Trump still threaten to do away with. If it happens, his action to please his voters would affect not merely Mexico, but the United States and Canada as well. It could mean an economic disaster for the three involved nations.
Trump’s victory also momentarily brought down oil prices as the West Texas Intermediate Friday was quoting at $43.43, down 2.71 percent, and Brent at 44.79, down 2.31 percent.
How long the Mexican government will have to wait to pump dollars into the greenback exchange market may not happen in the hopes that the rate will stabilize between Monday and Wednesday. Yet it is highly likely that Banxico will increase interest rates by as much as 1 percent as the peso-dollar volatility is threatening the economy as a whole which, if it continues unabated, is a risk to the stiff anti-inflations policies Banxico has been applying lately.
Both Carstens and Meade Kuribreña announced that they have “an arsenal” of measures available — including pumping dollars into the market — but they will not resort to pulling the exchange out of the free market.
But volatility will not go away, because everyone is expecting that the U.S. Fed will also hike its cost of money in its upcoming meeting early December.
Between now and then, we’ll all climb into the roller coaster and start screaming our lungs out in fear, because in Mexico, everyone sees Donald Trump as a Hitler-like 21st Century type of dictator whose hordes — the KKK is holding a victory parade this week — threaten world peace.
Let’s hope this is all sheer paranoia but the exchange rate will be the main gauging machine for the uncertain future Mexico is facing.
I told you so!