Use Mexican Peso, Chinese Yuan to Bet on US Election, Citi Says

Anya Andrianova and Zijia Song
·2 min read

(Bloomberg) -- The Mexican peso and Chinese yuan are shaping up to be the best ways for currency traders to bet on the outcome of this year’s US presidential election, according to Citigroup Inc.

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Both currencies are expected to have outsize reactions to the vote thanks to their home nations’ relationships with the world’s top economy. To Citi, that makes them compelling choices to express views on the political result ahead.

“Rather than trade broad dollar strength, MXN and CNY were currencies where there are likely meaningful differences in terms of the policy backdrop — especially if immigration and trade take center stage,” strategist Alex Saunders said. “Republican wins have led to weakness in these currencies in prior elections” against the dollar.

The peso, for example, plunged in the two months following President Donald Trump’s election in 2016 as traders weighed his administration’s stance on trade and immigration. The yuan also weakened as focus turned to Trump’s trade policy and sanctions.

These move offers evidence of the yuan’s strong divergence in performance depending on the US election result, according to an analysis by Saunders and Dirk Willer, which tracked the currency going back to 2012. Based on data since 1998, the strategists see the peso responding positively to Democratic victories and negatively to Republican challengers.

Elsewhere in markets, equities tend to perform well in election years, with investors preferring victories by an incumbent or a Republican challenger, according to Citi. Treasuries also tend to perform well, with no strong patterns around the election dates. The strategists called the dollar spot rate’s performance around elections “unremarkable,” even though it strengthens — such as against the peso and yuan — when Republicans win.

The dollar has risen so far this year against all of its Group-of-10 currency peers and the Chinese yuan, according to data compiled by Bloomberg. The peso, meanwhile, has been able to hold onto its recent gains, edging higher this week to extend last year’s 13% rally.

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