The Mexican peso is now one of the cheapest currencies in the world, according to Kamakshya Trivedi, a strategist on Goldman Sachs’ Global Investment Research team.
President Donald Trump gets most of the credit – he has repeatedly attacked Mexico for taking advantage of trade deals with the United States. He said the country was taking jobs from US workers as companies shifted their production south of the border.
Trump singled out NAFTA as “the worst trade deal in the history of the country,” and even went as far as saying he would withdraw the US from NAFTA if the US’s partners, Canada and Mexico, refused to negotiate a “fair deal.”
The Trump team has threatened a 20% tax on imports from Mexico to help pay for the border wall that Trump has promised since the beginning of his campaign.
As this happened, the peso found itself in the crosshairs of traders everywhere, tumbling about 20% from November 8 until Trump was sworn in on January 20. But since Trump officially took power, the peso has strengthened by about 7% against the dollar.
It has plenty of room to go, according to Trivedi.
In a note to clients on Monday, Trivedi wrote that two separate models suggest the peso is about 25% below "fair value."
Trivedi said the currency could strengthen to 19 pesos per dollar over the next 12 months. That would be a gain of about 8%, a huge move for any currency.
Even though Trump's hostility toward Mexico spurred the peso's decline, the recovery might be welcomed by the White House because a stronger currency would make US-made goods more competitive against Mexico's exports.
