Forex Flash: CAD “No excitement please”/ MXN – “Si, por favor!” – HSBC
Forex pairs in this Article »
USD/MXN
FXstreet.com (Barcelona) - On paper, CAD offers much of what MXN does. It is highly correlated with RORO and has very strong economic ties to the US, with 70% of exports destined to head south.
However, the HSBC FX Strategy team believe that its biggest deficiency is that it does not offer the drama of the MXN. Quite simply CAD is much less volatile that MXN and as such often do not receive the same attention from speculators. They believe that if there is to be any drama around the US Election and the fiscal cliff debate, it is more likely to be seen in the MXN than the CAD. They suspect that the recent collapse in MXN volatility could reverse violently.
Having looked across the market at other pairs and combinations for the best trade in the build up to the US Election, the team believe they may have found it in USDMXN because it offers the "punchiest and most appropriate exposure to the US election and fiscal cliff debate." The impact will be determined by the impact on RORO, but this in turn will be dictated by expectations for Fed QE, the fiscal cliff threat and the likely stance of policy thereafter.
If Romney were to win, the team suggests buying USDMXN. They believe that the market would likely speculate that it will lead to a new chairman in the Fed, raising fears that the perpetual QE programme will be curtailed or cut short. In addition, a threat to 'risk on' is the question of US-China relations. Romney ha promised to declare China to be a currency manipulator on day one. "The world will not want to contemplate a currency/trade stand-off
between these two economic giants at a time of global economic fragility. These two factors would contribute to a "risk off" mood in markets."
If Obama were to win, they recommend selling USDMXN. A win would suggest business as usual for the Fed and markets would look for the QE scheme to be sustained and even beefed up when appropriate. The China event risk would melt away as the threat of some trade stand off would be averted. The resultant 'Risk on' mood would see USDMXN head lower. They feel that some of the euphoria would be tempered by increased nervousness regarding the fiscal cliff given that the three strands of US Government were split along party lines but as they see falling off the fiscal cliff as a USD negative, they are relaxed within the context of this trade.
In conclusion, Mexico offers thrills, and not just for students and party goers in Cancun. The team believe that positioning for the US Election is not an easy task given the myriad of option available. However, they believe it "essentially comes down to a call on the likely impact on RORO and, in turn,which currency pair is best placed to reflect a US-driven shift in RORO. USD-MXN comes out on top.ome may be tempted by the fine wines of AUD and CAD, but when you really want excitement, Tequila is really the only way to go."
However, the HSBC FX Strategy team believe that its biggest deficiency is that it does not offer the drama of the MXN. Quite simply CAD is much less volatile that MXN and as such often do not receive the same attention from speculators. They believe that if there is to be any drama around the US Election and the fiscal cliff debate, it is more likely to be seen in the MXN than the CAD. They suspect that the recent collapse in MXN volatility could reverse violently.
Having looked across the market at other pairs and combinations for the best trade in the build up to the US Election, the team believe they may have found it in USDMXN because it offers the "punchiest and most appropriate exposure to the US election and fiscal cliff debate." The impact will be determined by the impact on RORO, but this in turn will be dictated by expectations for Fed QE, the fiscal cliff threat and the likely stance of policy thereafter.
If Romney were to win, the team suggests buying USDMXN. They believe that the market would likely speculate that it will lead to a new chairman in the Fed, raising fears that the perpetual QE programme will be curtailed or cut short. In addition, a threat to 'risk on' is the question of US-China relations. Romney ha promised to declare China to be a currency manipulator on day one. "The world will not want to contemplate a currency/trade stand-off
between these two economic giants at a time of global economic fragility. These two factors would contribute to a "risk off" mood in markets."
If Obama were to win, they recommend selling USDMXN. A win would suggest business as usual for the Fed and markets would look for the QE scheme to be sustained and even beefed up when appropriate. The China event risk would melt away as the threat of some trade stand off would be averted. The resultant 'Risk on' mood would see USDMXN head lower. They feel that some of the euphoria would be tempered by increased nervousness regarding the fiscal cliff given that the three strands of US Government were split along party lines but as they see falling off the fiscal cliff as a USD negative, they are relaxed within the context of this trade.
In conclusion, Mexico offers thrills, and not just for students and party goers in Cancun. The team believe that positioning for the US Election is not an easy task given the myriad of option available. However, they believe it "essentially comes down to a call on the likely impact on RORO and, in turn,which currency pair is best placed to reflect a US-driven shift in RORO. USD-MXN comes out on top.ome may be tempted by the fine wines of AUD and CAD, but when you really want excitement, Tequila is really the only way to go."
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