(Bloomberg) -- Mexico’s peso may be headed for its highest since March as rising odds of a Joe Biden victory in the U.S. propel optimism that policies on trade and infrastructure will bolster economic growth.
The currency tested 21 per dollar before eventually strengthening past that level as vote counts in Wisconsin and Michigan pointed to a potential win by the ex-vice president. The peso had dropped about 4% overnight to a session low of 21.9782 as President Donald Trump appeared victorious in Florida, reviving worries of a replay of 2016.
“I still feel pretty good about the peso,” said Brendan McKenna, a strategist at Wells Fargo (NYSE:WFC) in New York. “The election is leaning toward Biden’s favor right now, which takes some uncertainty off Mexico even though Trump wasn’t targeting the country this time around.”
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The peso traded at 20.9826 as of 3:15 p.m. New York time on Wednesday, up 0.6% from Tuesday’s close. One-month implied volatility slid to 18.83% after spiking to the highest since April.
A divided U.S. Congress will probably mean supportive policies for growth, including low tax rates, will remain, boosting sentiment and helping the peso advance past 20.83, according to McKenna.
The 20.83-84 area had capped peso gains in September and October. A breach would send the currency to the highest level since the global pandemic spread seven months ago.
Pre-election sentiment was cautious, even as polls showed Biden with a bigger lead in several swing states than Hillary Clinton held four years ago. The currency lost more than 2% between Oct. 26 and Nov. 2, the five days prior to the vote. Four years ago, the currency rallied 1.45% in the same period prior to the election.
Although the election remains close, a Biden victory “can definitely allow the peso to continue to appreciate,” said Jesus Lopez, a Banco Base strategist in Monterrey.
Lopez saw resistance at 20.85 and doubts the level would be broken before there’s a clear result. If it does break through, the currency could rise to as high as 20.50, according to Lopez.
The peso is poised to test 20.8450, near its September high, according to a note from Tom Fitzpatrick, chief technical FX strategist at Citigroup (NYSE:C). If the currency strengthens past 20.8450 on a closing basis, it could extend gains to at least 20.55, possibly with another extension past 20, Fitzpatrick wrote in a Nov. 4 note.
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