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How will the outcome of the US vote affect the currencies exchange rates? [CINKCIARZ.PL ANALYSIS]

The reaction of many currencies to the outcome of the presidential election in the USA seems to be quite easy to foresee. However, not all cases are obvious. An example of an uncertain one would be the Polish zloty. What are possible movements of the most popular currencies? Commentary of Marcin Lipka, senior analyst of Cinkciarz.pl.

Marcin Lipka, główny analityk Cinkciarz.pl

In recent weeks, we have observed some mood swings among American investors. Their reactions to changes in polls before the US election made it possible for the market participants to gain some relatively consistent knowledge of how particular currencies might react to the announcement of the vote’s results.

Strong influence of the voters to the dollar rates

In case of the Hillary Clinton’s win, the American dollar (USD) strengthening might be expected in relation to many currencies from the developed countries. This is mainly a result of the fact that a Democratic candidate will probably improve the sentiment on the US stock exchange. This would result in increasing chances for the Federal Reserve’s decision on raising the interest rates during the December summit.

The increase of the dollar’s value should cause falling quotations of the Swiss franc (CHF), Japanese yen (JPY), and euro (EUR). The first two currencies are still a quite common measure to assess the concerns on the markets. If the shares rise in the world, then the rates of the franc and yen should go down, especially in relation to the dollar. This affects the euro to a lower extent, even though in the case of Clinton’s win, the dollar’s relation to the euro should be more expensive by at least 1 – 1.5 percent.

If Donald Trump prevails, it is a good chance for the reaction opposite to the one described above. It is worth noting, however, that the range of changes will be much bigger in the case of Clinton’s triumph. This is a result of the varying probability calculated for each candidate. According to bookmakers, after the FBI’s comment released on Sunday, where the Bureau informed that “there are no grounds for pressing charges in the case of Hillary Clinton’s use of personal mailing account” (quote from Polish Press Agency), Trump’s chances for being elected president fell. The data presented by oddschecker.com shows that his chances are approximately 20 percent.

At this moment, should the Republican candidate win, the market would find it surprising. Thus the franc or yen could gain up to a 4% value. If Donald Trump is to be the new resident of the White House, the euro would reach the level $1.14, which is 3 percent more than right now.

Currencies from the emerging markets

In the context of the currencies from the emerging markets (EM), the reaction might be less obvious. Hillary Clinton’s win means a further strengthening of the Mexican peso. Even after yesterday’s news from the FBI, this currency gained a 2% value in relation to the dollar.

In the case of the election of a Democratic candidate, the influence on the Brazilian real, Korean won, South African rand or Turkish lira should be limited. On one hand, the global sentiment should support them, on the other, a higher probability of raising the interest rates in the USA might lower the demand on treasury bonds from these countries.

On the other hand, in the case that Trump wins, the reaction in some cases might be panic. Apart from a global weakening, the dollar in relation to the peso would probably get more expensive by at least 5 percent. The Mexican currency could lose up to 10 percent value against the yen or franc.

Also the rand, lira and won would lose value. A worse global sentiment and a quite strong dependency on foreign capital (especially for South Africa and Turkey) would cause a significant weakening of these currencies both against the gaining value of the euro, as well as the dollar, which was quoted under the selling pressure.

The influence of the results on the zloty

A scenario in which Clinton moves into the White House, might cause a mixed reaction on the domestic currency market. In this situation one might expect a significant increase of the dollar’s rate (approximately 5%), as well as decrease of the franc’s exchange rate to approximately 3.95 PLN. The euro should also be slightly cheaper, although its dive below the level of 4.30 PLN is limited.

Just like with other currencies, Trump’s win might mean a larger range of changes in the zloty than the hypothetical win of Clinton. There is a big risk of the increase of the franc’s value, which would probably reach levels between 4.10 and 4.15 PLN. The National Bank of Switzerland could avoid the strengthening of this currency on a larger scale, however, it would probably restrain from intervening in the first hours after the announcement of the election’s results. The global increase of the euro’s value and an uncertain sentiment would cause the European currency to reach the level of 4.35 – 4.40 PLN. There is also a big chance that the dollar’s value would go down by 0.10 PLN.

In the broader context, one needs to remember that the Polish economic ties to the United States are quite limited. Only 5 percent of Poland’s export is sent overseas, while the USA addresses approximately 70 percent of the foreign demand regarding Mexican products. Also, in the case of Latin America and Asia, a more protectionist attitude of the US would cause faster and more severe consequences than in the countries of our region. In this angle, the European Union could be perceived as relatively safer and more stable. This would limit the negative influence on the zloty of the financial investors among other currencies which are active on the market of the Polish treasury bonds.

After couple weeks, it might turn out that regardless of the scenario in the USA, the zloty would remain close to the current levels in relation to the euro or the franc. Only the dollar would experience a lesser buying power in the case of Trump’s win than in the case of Clinton’s triumph.

 

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