As we noted more than a month ago, the Mexican peso has become the forex market's de facto measure of "Trump" risk. Traders see Republican Presidential candidate Donald Trump as relatively hostile to Mexico, given his promise to build a wall along the U.S.-Mexican border, and his harsh opposition to the North American Free Trade Agreement ("the worst trade deal the U.S. has ever signed").
Therefore, when Trump's odds of winning the presidency have risen, the peso has tended to struggle (USD/MXN rise) and conversely, when Democratic candidate Hillary Clinton's probability of taking the oath of office have ticked up, the peso has seen a relief rally (USD/MXN drop). Interestingly, this previously-reliable relationship has broken down of late.
Trump's odds, as measured by poll aggregators like RealClearPolitics and FiveThirtyEight, are at multi-month highs. However, the peso is not at corresponding multi-month lows. In fact, the peso has strengthened notably over the last two days in particular, and the currency is now trading around the midpoint of its 6-month range at 19.00.
Source: Faraday Research
This naturally begs the question: Which is "broke," the recent opinion polls or the peso's reliability as a proxy for Trump's election odds? We'll likely never know the answer to the question definitively, even after the election because both polls and market relationships only provide probabilistic forecasts anyway.
That said, we're more inclined to side with the polls, which have shown a near-unanimous tighter race across the board (not to mention the moves in some of the other markets, including the U.S. dollar and U.S. equities, which also suggest increasing political uncertainty). Perhaps peso traders realize that even if Trump is elected, he won't be able to unilaterally tear up NAFTA or build the wall without cooperation from domestic and foreign partners.
As we head into what promises to be a hyperbolic, vitriolic election, perhaps we can take solace from peso traders, who apparently have determined that the world is unlikely to end Nov. 8, regardless of who's elected.