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Goldman Sachs Highlight Important Differences Between US Election Cycles

MXN
  • Given that the US election has become a central focus of FX investor discussions, with trade policy being a key part of the agenda, Goldman Sachs think there are a few important differences between this US election cycle and the 2016 one.
  • First, given that former President Trump was behind the USMCA trade agreement, GS expect that trade policy with Mexico will be relatively less of a focal point for his campaign.
  • Second, a stricter stance on trade with China should, all else equal, point to a larger degree of import substitution towards Mexico, which GS have found to have already started in the last few years.
  • Finally, on the local side, the Mexican economy is in a stronger position now than in 2016. The current account is nearly balanced, supported by a strong remittances flow, while in 2016 it printed a deficit close to 3%. While growth momentum is slowing, it is starting from a stronger point than in 2016.
  • And, while FX carry began increasing through 2016 as the Banxico began raising rates it was still at a lower level than now. While positioning may be a more significant issue at the current juncture for MXN, GS think across the board US tariffs would also be problematic for the majors (CNH and EUR) along with the small open economies where a large share of exports go to the US (such as Korea).
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