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How the US Presidential Election Could Impact Exchange Rates

In Business and Currency by Continental StaffLeave a Comment

Global events affect currency exchange rates, and there are few events more global than the US Presidential election. The United States has the world’s largest economy and most powerful military, and today Americans will go to the polls to decide between the two most disliked candidates in history. Whatever the outcome of the US Presidential election, there are sure to be some serious currency movements.

Trump

donald trump election 2016 pence campaign

Even Trump’s supporters would say that the man is a maverick and, if he is elected president, will shake things up in Washington – that’s why they are voting for him. Unfortunately the markets do not always look as favourably on Trump’s policy positions as his supporters.

Should Trump win, the USD which has gone from strength to strength over the last year, could drop. Strong economic data over the last few months has bolstered the argument for a rates rise from the Federal Reserve in December, but a Trump victory could throw that into doubt.

Throughout the campaign Trump has railed against the TPP (Trans Pacific Partnership), a large free trade deal between Pacific rim countries. Should Trump win the US Presidential election, the outlook for TPP will be bleak. At best it will be stalled, at worst it could be heavily altered or thrown out altogether. That would be a huge blow to Pacific countries, particularly Australia, Chile, New Zealand, Japan, Vietnam, and Canada.

One country more than most has been the target of Trump’s ire – Mexico. Trump has continually doubled down on his promise to build a wall along the US/Mexico border at Mexico’s expense throughout this US Presidential election cycle. Understandably this policy would likely steer US-Mexico relations into rough waters, and the Mexican peso has been hurting since Trump became the Republican nominee. A Trump win would send the peso down further.

Trump has also had more than a few choice words for China, the world’s second largest economy, even going so far as to suggest that they are illegally depressing their currency to out-compete other exporters. Expect some serious movements in CNY/USD, with the CNY likely strengthening, should Trump be elected. 

Another foreign beneficiary of a Trump presidency may be Russia. Sanctions (and low oil prices) have hit the ruble hard, but if Trump’s relationship with Putin is as strong as some suggest then the possibility of lifted sanctions will boost the Russian ruble. Clinton, in contrast, has long taken a hardline approach to Russia on geopolitical and moral grounds. Her victory could mean even tighter sanctions and a fall in the ruble. 

Overall Trump’s anti-globalisation, anti-trade rhetoric could be nothing more than chest puffing to motivate his base, or it could be the basis of strongly protectionist policies. In the case of the latter some people have justifiably argued that currency and trade wars could result. Even if the US won these economic battles it would set a dangerous precedent for the global economy.

Former IMF chief economist Simon Johnson, said a Trump win could set the global economy “back to the Great Depression in terms of the impact on trade and consequences”.

Clinton

hillary clinton campaign american flag president election

After Clinton was cleared by the FBI over the email scandal for the second time this US Presidential election cycle, the Mexican peso shot up 2.2%, before settling back down for a total gain of 1.9% – still a huge margin for a single day.

Clinton’s campaign has been bogged down by the email scandal (she has even been accused of criminal wrongdoing by Trump, despite the FBI’s findings to the contrary) almost since the start. Despite this, Clinton represents political continuity. She was Secretary of State under Obama, responsible for Bill Clinton’s failed health care reforms (the lessons of which were used to pass the Affordable Care Act aka “Obamacare”), a Senator, and a ‘political insider’ for more than 30 years. She is very much a known quantity and a cool head, exactly what the markets want considering the strong economic performance the US has enjoyed of late. 

Clinton’s supporters view her political past as valuable experience and argue she is one of the, if not the most, qualified presidential candidates ever. Clinton’s detractors bemoan her ‘insider’ status, and want something new – even if that new something is Trump.

Clinton was initially a strong supporter of TPP, but due to pressure from Bernie Sanders in the primaries, she has since taken a more skeptical tone. Still, TPP has a far more stable and certain future under a Clinton presidency than a Trump presidency. Remember that NAFTA (North American Free Trade Agreement) was passed the last time a Clinton was in the White House, boosting US Mexico trade to $500 billion per year.

Clinton is also a policy wonk, she knows the ins and outs of legislation, and although she will likely find congress to be hostile if it remains in Republican hands, she knows how politics works in Washington and around the world. Clinton won’t bring radical change – bad news according to Trump supporters, but good news for the markets.

Markets will react favourably if Clinton wins, the USD should remain on course for a rates hike in December, the peso will recover ground lost due to the continual threat of a Trump victory, and TPP countries should also receive a stockmarket and currency boost.

What if there is not a clear winner?

president unkown united states election

If the US presidential election goes down to the wire, and there is some uncertainty ala the 2000 election which ended in Bush’s favour after a legal battle brought Bush v Gore to the Supreme Court, then the markets could go haywire, or sink into cautious anticipation, ready to pounce a the first sign of a decision.

US Presidential Election Currency Outcomes

currency ben franklin us capitol dollar hat

Currency markets are unpredictable, but by aggregating the opinion of global sources and internal experts, we have compiled a chart showing the possible reactions of some of the currencies most likely to be affected by the US presidential election. Remember, markets are unpredictable, and we have only accounted for two possible outcomes: A Clinton victory, or a Trump victory. There are other important contingencies which we have not accounted for, including:

  • Whether Republicans retain one or both houses of Congress
  • Whether a recount or Supreme Court decision is required to determine the winner (as was the case in 2000)
  • How the candidates react to the outcome (i.e. will the losing candidate lend support to the outcome or fan the flames of conspiracy – as Trump has threatened to do)
  • The scale of the victory (a landslide sends a very different message than a close call)
  • Other global events
USD MXN/USD Exchange CAD/USD Exchange GBP/USD JPY/USD Exchange Gold
Clinton Up Up (by as much as 5%) Up (eventually) Down Down Down
Trump Down (against the majors) Down (by as much as 8.6%) Down Up Up Up

USD: The USD has been going from strength to strength, and the Federal Reserve will likely increase interest rates in December (which would strengthen the USD). If Trump wins then the uncertainty will hurt markets and discourage a rate increase.

MXN: Trump’s strong language against Mexico means that the peso could fall almost 10% if Trump wins, but could recover ground if Clinton wins, to the tune of 5%.

CAD: Canada is the United States’s biggest trade partner. If Trump wins the USD will go down, but so too will markets and America’s economic outlook. Ultimately what is bad for the US will be bad for Canada, but a Trump victory may cause the CAD to rise briefly against the USD. Clinton’s victory could result in a drop in CAD/USD, but only due to the relative strength of the USD. Long term Clinton’s commitment to economic continuity and free trade will benefit Canada and the CAD.

JPY: Clinton would bring more economic certainty, leading to a rate increase and the strengthening of the USD relative to the JPY. The JPY is seen as a safe currency and investors could shelter there while the USD stabilises following a Trump win. Following the Brexit vote the JPY gained more than 15% on the USD, although the country’s stock market fell about 8%, and a similar reaction in the currency and stock market would likely result from a Trump win.

GBP: The pound has taken a beating since the Brexit vote while the USD has gone from strength to strength. USD/GBP has more or less followed the ups and downs of Clinton’s campaign. A victory for Clinton would strengthen the USD against the GBP, while a Trump win would result in the reverse. Major economic turmoil however could encourage the Bank of England to decrease interest rates and increase Quantitative Easing, both of which would devalue the GBP. 

Gold: Gold is seen as a safe-haven for investors. If Trump wins then the economic uncertainty that his protectionist rhetoric brings will likely encourage investors to shelter in gold – at least until a coherent economic strategy becomes clear and markets settle.

Last Word

election white house united states washington DC

Throughout his campaign Trump has raged against ‘crooked Hillary’, rigged polls, and a hidden conspiracy against him. Should he lose the election then we will see whether Trump’s words were just vitriolic rhetoric, or the beginning of something far more dangerous. If Trump refuses to accept the election results, which no candidate has ever previously done, then expect any boost to the USD or global economy resulting from Clinton’s victory to be mitigated.

See what we learned from Brexit and how it relates to today’s election.

Regardless of the outcome, remember to buy and sell your currency at Continental Currency Exchange at the best exchange rates guaranteed! Find a branch near you HERE or buy your currency online with FXtoGO.

Stay informed. Stay Current.