Nordine Naam, FX EM Strategist at Natixis, suggests that the November US presidential election will be watched particularly closely by the financial markets, notably by foreign exchange operators, given the radical policies propounded by Donald Trump.
“Our assessment is a victory of Hillary Clinton would not affect our baseline scenario, which is for an appreciation of the US dollar. If Donald Trump prevails, this would be positive for the greenback in the short term in that it would stoke uncertainties at political and economic levels, but it would be negative over the medium term in that it would raise the spectre of a stagflation in the US.
Emerging currencies would also be affected, in particular the Mexican peso and Chinese yuan, by prospects of a sharp increase in import tariffs and, more generally, a resurgence of protectionism. The currency war could also intensify.
Commodity currencies could be indirectly affected by the more pronounced slowdown in global trade, which is already anaemic, if the protectionist measures announced by Donald Trump are actually implemented.
If D.Trump win the US lection, EUR, CHF and JPY however should rebound in the medium term against the dollar weakened by stagflation in the US economy.
On the volatility side, we can expect renewed volatility as can be seen already on the USD/MXN and especially the spread of this volatility in other currency pairs including USD/CAD and Asian currencies.”