The election of Donald Trump to the U.S. Presidency has sparked an increase in the cost of borrowing around the world. Currencies reacted to this strongly against the U.S. dollar, and none were hit quite as hard as the Mexican peso, which is on track for one of its worst weeks of all time. Asian currencies were also impacted heavily by this news. However, it should be stipulated that it is the emerging markets that are hurt the most here. The Philippines’ peso recently hit a seven-year low. Malaysia’s ringgit has achieved a 12-year low. Turkey’s lira has also recently seen an all-time low.
This mostly occurs because the U.S. 10-year treasury bond is seen as the benchmark for what every other nation will do in terms of setting interest rates. Basis points on these bonds jumped by 40 points in the two business days between news of Trump’s election and the U.S. holiday on Friday. Investors are uncertain about what President Trump will do to the economy, and much of this appears to simply be a hedge against that big question mark. In emerging markets, like Mexico, no one is really sure what Trump will do as far as trade and international relations are concerned. They are cutting their positions as a result, and it is almost indiscriminate in its nature.
There are other factors that need to be taken into account, too. For example, a decline in borrowing in October and November is normal in most countries. It is not related to credit growth, or to international politics. Yes, politics has created some uncertainty, but Trump has not yet been sworn in as President. The kneejerk reaction that is currently occurring is because investors in other parts of the world are trying to protect their cash. This is a well-intended act, of course, but it is likely to be misguided in many cases. For example, even countries that stand to benefit from a Trump-led America are seeing huge declines. China is a strong example here. Putting aside all of the negative scare rhetoric coming from Trump about China and the country’s intentions, this country is actually in a position to create huge profits, simply because of the amount of raw material that the nation has. Establishing stronger trade ties with China is something that will realistically occur—just like it did during the Nixon era. Instead of seeing increases, China saw the yuan drop to a six-year low against the U.S. dollar. If the large infrastructure increases that Trump has proposed are going to occur, China will be one of the biggest gainers. The USD/CHY is one of the top currency pairs to keep your eyes on moving forward.
Russia, who has publicly been seen as a beneficiary of a Trump Presidency, did not have the huge gains that were expected. The ruble showed gains, but this was largely a bounce back from the large declines that it has been experiencing in recent months. However, it does appear that a sense of normalcy has now set in, at least in this particular corner of the world.
Binary options and Forex traders have a lot of potential right now to benefit from these artificially low prices. Timing is important, and just because prices are at all-time or relative lows right now does not mean that long positions are the way to go. It could take several weeks before predictability becomes realistic again, even for the shortest of expiries in the binary world. However, the stage is set and now it is just a matter of time before these opportunities manifest themselves.