US Elections’ FX Market Impact: Winners
- Both USD/CAD[1] and USD/MXN[2] rates showed significant weakness in the immediate reaction to the US presidential election results.
- The US political and vaccine development news over the past week have been extremely bullish for the Canadian Dollar[3] and the Mexican Peso, insofar as it means a higher likelihood of resolving trade tensions.
- As a close proxy to USD[4]/MXN rates (20-day correlation of +0.81 and 50-day correlation of +0.84), we can examine the IG Client Sentiment Index[5] for USD/CAD rates.
Biden Win Normalizes US Trade Policy
Democrat Joe Biden has won the US presidency[6].While many of his policies and plans may not come to fruition thanks to a divided Congress, one area that he can directly impact, regardless of the composition of Congress, is trade.
Trade wars were a hallmark of the Trump era. While a president-elect Joe Biden may not deviate that far on trade policy when it comes to China beyond ending tariffs, there is a reasonable basis of expectation that the Biden administration will seek to normalize trade policy with key allies.
Read more: Will Trade Wars Persist After the US Election?[7]
US’ Trading Partners Have Been Pressured
Among the countries at the top of this list include Canada and Mexico, the United States’ immediate geographic neighbors. The combination of higher tariffs implemented by the Trump administration and the coronavirus pandemic has hurt the Canadian and Mexican economies significantly. That the United States is in the midst of its worst stretch of the coronavirus pandemic is hobbling Canadian and Mexican economies from fully recovering.
The reliance of both of these economies on the United States can’t be dismissed; the United States
