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When it comes to the currency market, the peso has become an inverse proxy for Trump’s political fortunes and a shorthand for market sentiment on how well he is doing.
Over the past few weeks, as Trump’s standing in the polls improved, the peso was walloped by the market. But it saw a strong recovery Monday night after his first major stumble in days.
Trump’s performance was certainly less than stellar. But if there is anything that this election cycle has proven, it’s that the conventional wisdom does not apply. With less than two months to go, the presidential race is a toss-up despite the marked differences between the candidates. And no one can predict with any degree of certainty how the drama will play out.
If Trump wins, the peso could be in for more pain. But with so much of the scenario already factored into the price, the downside action in USD/MXN may be limited. On the other hand, on the other side of the globe, there is a currency that could lose as much as 10% of its value if the words “President Trump” become a reality.
That currency is the Australian dollar (AUD), which up to now has enjoyed a quiet, steady rise since the start of the year. Buoyed by one of the highest yields in the advanced industrialized world, the Aussie is the darling of every hedge fund on the planet that tries to make money on the carry trade by leveraging the interest rate differentials between Australia and the U.S. But its day of reckoning may be coming should Trump take hold of the nuclear button.
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Aside from Mexico, Trump’s other main nemesis is China. And a Trump presidency would no doubt instantly exacerbate tensions between the two countries. Their relations are already strained after a disastrous G-20 meeting in Hangzhou a few weeks ago, and Mr. Trump could quickly cast a pall on economic activity between the two nations with his call to renegotiate trade policies. Australia feeds commodities to China, and it serves as a major tourist and real estate hub for Chinese visitors.
Trump is also very likely to expand fiscal policy, blowing up the carefully restrained budgets of the Obama administration as he employs deficit financing. That in turn, will likely push U.S. rates up as inflationary pressures escalate, which will make the Aussie carry trade against the dollar much less attractive.
Finally, Mr. Trump is nothing if not unpredictable, and while that has worked well for him politically, capital markets generally abhor instability. Risk-aversion flows could rise at least in the first few months of his administration as markets ascertain his actions. The Aussie is the ultimate risk currency. It thrives when investor sentiment is positive and curls up like a porcupine at the first sign of investor panic, triggering a selloff in the pair as equities decline.
So while the conventional trade in the FX market will center on USD/MXN if Donald J. Trump becomes the 45th president of the United States, the much more interesting idea may be to consider the Aussie as the new proxy on Mr. Trump’s political adventure.
Happy trading,
Boris
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Faced with a record-low stock price, Deutsche Bank AG (DB) sold its British insurance division to help stabilize its financial position in the face of the U.S. Department of Justice’s demand for $14 billion to settle charges that it peddled junk mortgage-backed securities.
The bank sold the Abbey Life Assurance Co. for $1.2 billion to Phoenix Group Holdings, reports Bloomberg. The deal infused new life into the investment bank’s balance sheet with the cash as well as write downs on the division. DB stock rose as much as 4.4% on the news but still remains 50% below the same time last year.
Tesla entrepreneur Elon Musk is offering people the trip of a lifetime, reports Bloomberg, if you have $200,000 and a death wish.
If you do, you may qualify for a chance to found the first colony on Mars. The colonists will be chosen by Musk’s company Space Exploration Technologies Corp. – aka SpaceX. And within 10 years, they will be rocketed to the Red Planet to become a hedge for humanity against any apocalyptic event, including a stray asteroid or World War III.
But the odds of success are low, admits Musk, saying: “The first journey will be very dangerous, and the risk of fatality will be very high. Are you prepared to die? Then you are a candidate for going.”
It’s the end of an era; BlackBerry has announced that it will stop making its own cellphones. The company became famous for its keyboard-equipped cellphones that were must-haves for soccer moms, Wall Street traders, celebrities, and presidents, reports CNN/Money.
But the touchscreen revolution has left the BlackBerry in the dust – and sales have fallen to critical levels. The company plans to focus on software while serving die-hard fans by farming out the production of its phones – keyboard and all – to a telecom company in India.
The Money and Markets Team
{ 51 comments }
“… the carefully restrained budgets of the Obama administration …” — ? Really? In what world?
“… push U.S. rates up as inflationary pressures escalate …” — very unlikely. For demographic reasons, the US is headed into a deflationary period not seen since the 1930s. Larger and larger piles of debt pose the risk of, not inflation, but default, which will be further deflationary.
A few years out will likely see the end of the leveraged, fiat-currency finance that began in the 1970s. Trump would probably accelerate that development, willy-nilly, but it will happen regardless. Wrecking balls have their uses.
Trump “slogged through the debate” huh…?
You must have been watching the lamestream media, who is pulling out all the stops to lie and deceive voters for the benefit of Hillary.
Turn off media outlets like MSNBC.
You know nothing about mainstream America and the ordinary working man, who is also an investor, and who is neither black, white, or brown, but an American who is sick and tired of the lies from the entrenched good ole boys in the district of corruption whether they are democrat or republican.
They cannot believe Trump made it as far has he has, and they cannot believe their own polls, so they lie and skew the results.
After the election is over and Trump is elected to be the next President in the largest landslide in history, millions of people when asked who they voted for will lie and say they “did not vote for Trump!”
Right on, Dr. Donnie!
The two latest two editors to this site…Boris and Kathy…were recently introduced as having COME from MSNBC.?
“Trump is also very likely to expand fiscal policy, blowing up the carefully restrained budgets of the Obama administration as he employs deficit financing. ”
WHAT CAREFULLY RESTRAINED BUDGETS OF THE OBAMA ADMINISTRATION???
Have you bothered to look at the National Dept in the last 7.5 years?
Unrespectfully, Jim
The budget increased 45% under Bush and has increased 6% under Obama. Those are the carefully restrained budgets of the Obama Administration.
No, the budget went up 50% under Obama (the FY 2009 budget) since the Democratic House and Senate did not pass the budget until March 2009 (6 months late) and signed into law by President Obama. It set a $1.9 Trillion deficit.
Thank you for your reply. I reexamined my figures and found an error and as you pointed out an oversight. The oversight was the 2009 budget where Obama’s stimulus was added to the existing Bush budget. This put 400 billion in Obama’s column and reduced Bush’s by the same. My error was to use Bush’s final budget rather than his initial budget in calculating his percentage increase. Thus Bush increased Federal spending by 1255 billion from 1862 billion to an adjusted 3117 billion. This is a 67.4% increase. Obama will increase Federal spending by 1030 billion from 3117 billion to 4147 billion (est.). This will be a 33% increase. The figures are given in constant 2009 dollars to remove inflation and are taken from Office of Management and Budget. Make of it what you will.
ya it seems not no one wants to give Obama the credit he should be getting for this mess he walked in to from bush.i don’t no what they been watching or doing.obama brought jobs back that rep took from everyone for their selfish selfs .rep the reason everything failed they took the jobs & shipped their 1 % over sea when bush left it took Obama few years get it back but he did .it better now it was if keeps going and someone keeps working help people all get back where we was it be alright but isn’t gonna be trump does that or rep .hello rep running everything now dam near it .see where that getting everyone Obama got through orders out just get jobs going .
The only jobs Owebama “brought back” were low paying menial jobs. The economy is in its death throes, with many more people unemployed than they report, since they drop people off the stats when their unemployment benefits run out…even though they are still jobless.
Welfare and food stamp recipients are way up as well
“Growth” of the GDP under Owebama has been nothing short of anemic!
For sure!!! Obama carefully restrained budgets??!
In Canada Stephen Harpers government was restrained. He went out of office with a surplus. He was a highly intelligent masters economist who arguably was the most economically knowledgeable prime minister in history.
President Obama has presided over a massive debt escalation. Please explain the difference in math because the debt certainly went up under Bush but I do not believe it more than doubled as it did with President Obama.
Easy – little over 1trillion to 4 trillion then slightly back to 3 trillion.
Hello again BORIS!!!
Obviously this organization is shilling for Hillary with some reward to follow. I know she is being funded by wall street and they could give a crap she will be the final straw to take us down.. First she will raise Obama”s 35% corporate tax which will drive more corporations out taking jobs with them. The Foundation, Benghazi, In upstate NY she promised 200,000 new jobs, when she left they were down 8,000. Taking out Kadafi, the list is very long. How about Larry Nichols??? The hit man for the Clintons. He has admitted to killing for the Clintons starting in Arkansas google it… or go to you tube and he will tell you an interesting story.. There is a list of over 80 people who have died crossing them.
In the unlikely event that the Orange, Bombastic, Narcissist and his Gullibles win, this market will be going into the crap can and I will be going short the next morning!….. :(
…and you will be one of the many that fuels the rise in stocks as you cover. Where else do you think global scared capital can go?
I’m willing to put money where my comment is…. How about you, if you are so sure?
News flash! This market is “going into the crap” regardless! Take a good look at a long term chart of the Dow. The fantastic recovery since 2008 has been on very meager volume. The only thing moving it is the weekly influx from millions of workers with insurance policies, savings accounts, pensions and 401k’s that invest every paycheck for them automatically.
The last few months show a big stall in side-to-side trading as well. I hope Billary gets in, so when the markets crash, I can hear them finally blame the former administration…Barrack Hussein Owebama.
going short on your own stocks is a good idea if you are not sure about the direction of the market. When ever the Fed does decide to raise the fed rate it is going to affect the market in a negative way-it really does not matter who is in office at the time. We are going to be in for a bumpy ride no matter what. If you have the money, better buy a little gold as a hedge!
You might want to check Larry Edelsons post. The should also check what happens with every new president elected.
Hi Boris
“Trump is also very likely to expand fiscal policy, blowing up the carefully restrained budgets of the Obama administration as he employs deficit financing.”
Boris, do you ever look at debt markets for a true reflection of how borrowing has increased under Mr. Obama. Whether Mr. Trump won or lost depends on who you support as a candidate. Australia’s problems will start with Europe, China and global trade.
See all this junk bond selling? has anybody any experience of banks selling endowments that could never repay the mortgage based on initial premiums? then after 5 years increase the premium and each five years thereafter? Was this common bank strategy throughout the world ?
John
Carefully restrained budgets?
“But the touchscreen revolution has left the BlackBerry in the dust …”
RIM has made touchscreen phones for years, and since the Z10 their touchscreens and on-screen keyboards have been very satisfactory indeed. It’s not the keyboards (which they also still make) that have put an end to their phone sales.
The Blackberry software is way more advanced than either Android or iOS, and I’m sure there is far more profit to be had selling their software than they could ever make selling commodity hardware in a mature market.
Brexit was to be the end of England and it has not happened. Now you feel Trump will be the end of our country and the world. Most Americans don’t care about the Peso or the Aussie dollar but care deeply about the direction their country is going. I would hope some of your future columns could deal with the threats Mrs Clinton brings to our country. Respectfully, George
Currency markets usually react to perceived news at first but when direction becomes clearer, settle down. No one with experience in these matters regards Trump and his somewhat intemperate speech to be a real indicator of government. When Presidents try to get to far ahead of consensus, the system simply slows down. If elected, Trump will be no different.
“Obama’s carefully restrained budgets . . .” Hilarious.
Whether Trump or Clinton wins the election, one thing is certain: America loses.
You forsee the future? Really? It was like electing an actor to become president, wasn’t it?
Stick to giving financial advice, as I did not purchase this service to hear your polictical views.
What are you people smoking? Trump won every poll except the ones controlled by the liberal media by a wide margin. Stumble? Nonsense!
hell did anyone watch the whole debate Bec Hillary smoked him.just by saying some of the truth about him.i sure there’s a lot more of that coming.she don’t even got to lie like trump doing .all she got to do is tell the truth about trump it so f up when someone stands up to him repeats it back to him he can’t even handle it about hes self.or for that matter control he’s self
Looking at the stock indexes its champagne time again the party train rolls on. Its a frail financial daisy chain. Oil markets jump American markets jump Asia sees this and jumps and Europe ditto. Boggles the mind that there are so many outright dumb investors in the world. We deserve the fate that awaits us.
Gordon,
It worked for the Democrates from 1932-1981 and so far it has worked for the Democrates from 2009-2016…… This is an ivestment site right? I’ll go short and inverse ONLY if Orange man and the Republicans win come November…… Lets not forget that the gans under Democratic Administrations from 1929-2012 were over 400 times better than under Republican Administrations….. Personally, I’d call that more than a heck of a track record and invest accordingly, aye?
Eagle495,
You are so right about the stock market gains consistently being better under a Democrat administration….
And to this day I can’t figure out why, do you know why it is the case?
It is possible that the fruit from one administration’s policies is not fully realized until down the road. The only way to settle this would be to have only Democrats in office for 20 years, then reset the currency and have only Republicans in office for 20 years.
I agree with you only one benefiting from rep side is the 1% rest is screwed .dem are more manageable.rep just waste throw money out like it grows on tree .I guess bec most them raised like that .well most of world raised on every dollar counts you just don’t waste it like rep do.look what bush did .then allow Obama in office trying put that all on him .
I would urge the readers to view “The Choice,” on PBS. It contains factual information on both candidates. If viewed in an objective manner, the facts should speak for themselves.
I cannot believe the Apprentice was on for fourteen seasons. I never saw an episode, but obviously it had a great following. God Help America.
You have to support a lady who stands behind her man when he is seduced by an young lady half his age.
Are you referring to Billary Rotten Clinton?
Cannot believe some of these comments, some people are just naive. I guess when he lied about it, was caught and impeached doesn’t mean a thing?
September 30, 2016 (Friday)
I’m from the Philippines and very interested in the outcome of the U.S. election in November 2016. We have a President here in the Philippines voted last May 2016 election by majority of the Filipinos who is giving the Republic a bad headache and giving the country an unpleasant reputation. He also flaunts his immorality.
God help America. Frankly, I think America should have another Party rather than just two Parties to choose from.
Hello Maribel,
There are two other main minor parties…the environmental Green Party, and the Libertarian Party which champions personal liberty and smaller federal government.
It is my belief that those in power in this good-old-boy two-party system work hard to keep it that way. They really don’t care who you vote for, as long as it is one of your two choices. Either way, they win, and the game goes on. They use the press to cow voters from “throwing their votes away” on any other third or fourth party, by always claiming each election as too close,and too important to risk even so much as a show of support for true change or heaven-forbid…a shift in their power (money) base!
They know American voters are stupid, ill-informed and easily swayed. They are the elite, largely beyond the reach of prosecution of the laws they themselves make, yet routinely break.
Yes unfortunately, they are not presidential material. The Den candidate protests, spray paints, gets arrested and the other is known pothead. We really do need better candidates, but they are not around.
My wife is there and she believed the ending of corruption and drugs is a good thing for the country, that he is doing.
As it stands now, the economy is in for a rude awakening. The enormous debt loads, both public and private is out of control. Our economy is much worse than the Great Recession and will soon crash; it will be a major reset. The next crash (coming very soon), will be so severe, it will make 1929 look great. It will be decades, before we fully recover, if ever in our children’s life times. 8 years of equity growth, due to Central Bank’s manipulation of interest rates at or near zero. They are stuck in the mud and can never get out. They have positioned themselves in a zero rate loop. Anything over zero, like last Dec and the markets have a heart attack. Anything below (like with 14 Trillion of neg rates), also creates more serious issues, especially with banks like DB and Commerce, not to mention, most of the other major banks who are supposedly, “To Big to Fail!” They should let them fail and bring back order – do the right thing for a change! Just saying…
After turning all stocks and bonds into cash until after this election settles,regardless of winner,I sleep easy.
Can the nation survive 16 years of the Clintons on Capitol Hill? And the answer is no. Trump has got to do it.
Emil
It’s the White House not Capitol Hill. And the real question is can the nation survive 16 weeks of Trump?
It is time to clean up the corrupt elite political class. They are out of control and don’t think about the hard working Americans who now work as slaves for our money greedy politicians
on the Democratic and Republican site. Clinton and her x Husband have lots of corrupt ongoings and fill there pockets with million $ from Chinan, and many states by giving them special allowances destroying our country.. We need Mr .rump to clean up there mess, we need to get rid of illegals to strengthen the US . get Jobs, get rid of all the restrictions imposed on us. Mr Trump has not been traint to speak as a politician to lie and give us promises , he is a business man and we need business people that are familiar with our taxes and struggle. Mr. Trump should get rid of most of our Congressman give them only 4 years of service, and no lifelong pention .. They should offer there time for the people not suck them dry.
Please make corrections I am not born here, but I lived her long enough to see what we need in our country to make it better. America has been sold out to many countries and we can not afford more destructions when Hillary is being voted in. she lies , How can you trust someone like her?
A Blackberrys a fancy type of phone. Is that the phone business executives use?