A Donald Trump win could rock this currency (and it’s not the one you think)

The Australian dollar would suffer most if Donald Trump were to win the U.S. presidential election, according to one foreign exchange strategist who calls the currency a "surprise trade" in this arena.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, pointed out the Mexican peso has been the "inverse proxy for Trump's political fortunes in the currency market for the last month," appearing to rise and fall conversely on the Republican nominee's favorability in the polls.

Trump has made global trade his biggest issue in the election, taking an especially dim view of America importing goods from Mexico, and his policies are thus expected to hurt the Mexican economy.

"But frankly, I think a lot of that trade has already been priced in," Schlossberg said Wednesday on CNBC's "Trading Nation."

To get to the Australian dollar, Schlossberg points out that after Mexico, China is Trump's "biggest nemesis."

Trump has repeatedly pointed to China as a problem for the U.S. economy. He has proposed implementing higher taxes on Chinese imports and says American leaders should take a hard line on the management of China's currency.

"Since Australia pretty much supports all of the commodity product to China, it's going to create a very big backlash onto them," Schlossberg said.

China is Australia's largest trading partner, according to the Parliament of Australia, and Australia is China's sixth-largest trading partner. This relationship has developed over the years as "the Chinese economy moves from a focus on investment in physical infrastructure to developing social infrastructure," according to the Parliament.

Further, since the Australian dollar benefits from the rate differential with the U.S. dollar, the Aussie currency could suffer if Trump were to clinch the win and likely raise rates, Schlossberg added.

According to an NBC News/Survey Monkey poll, 52 percent of likely voters said Democratic nominee Hillary Clinton "won" the first presidential debate, and 21 percent believed Trump prevailed. The Mexican peso strengthened dramatically against the U.S. dollar during the debate, while the Australian dollar rose slightly.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more