Mexican peso, stocks are strong performers in March thanks to Trump trade unwind

Published Tue, Mar 28 20173:43 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Mexico's peso and stock market apparently do well when President Donald Trump does not. The peso, supported by Mexican central bank rate hikes, has also been rising in lockstep with the Mexican stock market. Crushed after Trump won the presidential election, the currency has been rebounding and is now up just about 6 percent against the dollar in March alone, a top performer against the greenback among the world's major currencies. The peso was lower on Tuesday. Mexico's outperformance has to do with the U.S. president's performance, analysts say. Trump has ordered a wall to be built on the Mexican border, is renegotiating NAFTA and has criticized Mexico over immigration. But he was seemingly weakened in his ability to take action, after last week's health-care debacle. "Trump risks receding after the health-care bill," notes Andres Jaime, Barclays global foreign exchange and rates strategist, in an email about Mexico's markets. Mexico's IPC stock index hit a new intraday high Tuesday and is now up more than 5 percent for the month, on pace for its best month in two years. In the same period, the S & P 500 is flat. Both the currency and stocks benefitted when Trump and the Republicans struggled to repeal and replace Obamacare legislation last week. "It illustrates there's a lack of cohesion in Congress or the ability of the president himself to come up with policy or implement policy, which is much more hindered than the president was indicating back in November when he was elected, or at the inauguration in January," said Peter Donisanu, Wells Fargo Investment Institute investment strategy analyst. Donisanu said Trump may be hampered in making more extreme moves aimed at Mexico because of the fact that the Republican Congress has now shown it will not automatically be unified around his positions. "Renegotiating the NAFTA deal is still on the table, but any extreme deviation from where we are today is probably going to be less likely," said Donisanu. The peso is up more than 8 percent against the dollar this year, and it's had a strong fundamental move, as much as a reversal of the Trump trade. "We've seen a little bit of weakness today but the general trend has been a strengthening since the middle of January, and a lot of that has to do with interest rate hikes by Mexico's central bank," Donisanu said. He said the performance depends now on what comes from the Trump administration. He said a border adjustment tax, proposed by Congress as a tariff on all imports, would hurt the peso and the Mexican stock market.

A worker wraps a stack of Mexican 1,000 peso bills inside a currency exchange store in Mexico City.

Susana Gonzalez | Bloomberg | Getty Images

Mexico's peso and stock market apparently do well when President Donald Trump does not.

The peso, supported by Mexican central bank rate hikes, has also been rising in lockstep with the Mexican stock market. Crushed after Trump won the presidential election, the currency has been rebounding and is now up just about 6 percent against the dollar in March alone, a top performer against the greenback among the world's major currencies. The peso was lower on Tuesday.

Mexico's outperformance has to do with the U.S. president's performance, analysts say. Trump has ordered a wall to be built on the Mexican border, is renegotiating NAFTA and has criticized Mexico over immigration. But he was seemingly weakened in his ability to take action, after last week's health-care debacle.

"Trump risks receding after the health-care bill," notes Andres Jaime, Barclays global foreign exchange and rates strategist, in an email about Mexico's markets.

Mexico's IPC stock index hit a new intraday high Tuesday and is now up more than 5 percent for the month, on pace for its best month in two years. In the same period, the is flat.