The US election beta

September 27, 2016

Having obsessed about an event that did not happen this month (a Fed tightening), markets now turn to obsessing about an event that will happen, namely a change of US President. To this end, the first of three live TV debates last night caught the attention of markets and from here on in, we are going to have to get used to a higher beta to the ebb and flow of US politics over the next few weeks. Interestingly, for what it’s worth, the Mexican peso was stronger on the back of the tone of the debate, although it’s almost farcical to place any credence on this during Asia trade given the extreme lack of liquidity. Still, it did prove to be instructive of the sort of market movements we could come to expect over the coming weeks, namely the dollar struggling should Trump push ahead, especially against some of the Latam currencies that could lose out from a more protectionist US President.

The Aussie, kiwi and Canadian dollar have pushed ahead as well overnight, in part on the better tone to risk assets and with oil prices largely holding onto the gain seen into yesterday’s NY close. EURUSD is quietly pushing ahead, having risen for the prior four sessions. Depending on how the election race pans out, we could again be entering one of those periods where the single currency acts as a ‘de facto’ safe haven currency, as uncomfortable as that may be from some angles. Meanwhile, USDJPY struggles with the prospect of a sustained push below the 100 level, although that could well prove to be only a matter of time if the recent price action continues.

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