Mexico's Trade Deal With The U.S. Will Take Time
Swissquote Ltd | Jul 29, 2018 09:23
The Mexican election on 1 July 2018 gave reason to President-elect Andrés Manuel López Obrador (referred as AMLO), regarded as favourite in election surveys, winning with a majority of 53.20% of total votes. Additionally, AMLO’s National Regeneration Movement (MORENA) party detains the absolute majority in the National Congress, including the Senate and the Chamber of Deputies of over 37%, becoming the most powerful party of the country. Thanks to its three-party coalition composed of the three largest party in Mexico (including National Action Party and Institutional Revolutionary Party), AMLO’s MORENA government has free hands to make the necessary reforms without facing fierce opposition.
Receiving congratulations from President Trump, AMLO is maintaining good relations with US President Trump. Indeed, representatives of newly elected government already attempted to important ministerial negotiation meetings with US legislators. Despite increasing efforts from the exiting Mexican government to find an acceptable NAFTA arrangement with both US and Canadian counterparts, Trump seems much more prompt to negotiate with President-elect AMLO alone on the matter. For now, discussions between both correspondents mainly focused on illegal immigration from Mexico to the US rather than trade.
On that topic, AMLO and Foreign Minister Marcelo Ebrard appear to play the game, as they recently sent a proposal in that sense.
Although both Mexican administrations (in and out) would favour a trilateral agreement over bilaterals, Trump’s preference is quite different. Going forward, the Mexican economy enjoys a positive economic outlook. Nominal wage growth lies at 16-year high (+6%), unemployment rate remains at historical lows and private consumption maintains its positive course.
Considering the fact that Mexican peso remains the strongest EM currency (year-to-date USD/MXN: -4.60%) amid end-June Banxico rate hike due to higher inflation and AMLO’s presidential victory, USD/MXN collapsed by -10% from mid-June entry point. Trading at 2-months low, the pair is expected to bounce back along 19 in the near term, as Fed’s monetary policy meeting is approaching.
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