Dollar gains, Mexican peso dives as US presidential race too close to call

The US dollar jumped and risk-sensitive currencies weakened on Wednesday as early results in the US presidential election showed a very tight race, prompting a wind-back of bets on a victory by Democratic challenger Joe Biden.

President Donald Trump, who has so far trailed in polls, has maintained a slim lead in key battleground state of Florida, with the Chinese yuan and Mexican peso hit hardest by the spectre of four more years of his aggressive trade policy.

“I think the odds of a clean sweep are diminishing, almost by the minute. That reduces the possibility, or the likelihood at least of a large stimulus program being agreed to in the first days of a Biden administration,” said Matt Sherwood, head of investment strategy at Perpetual in Sydney.

The Mexican peso fell almost 4 per cent at one point and last traded at 20.905 per dollar, down almost 3 per cent while the offshore Chinese yuan fell 0.8 per cent to 6.7362 to the dollar, hitting one-month low at one point.

Among major currencies, the euro fell 1 per cent to a low not seen since late July and last stood at $1.1624, down 0.82 per cent on day.

The Australian dollar lost 0.6 per cent to $0.7128 while the British pound dropped 0.6 per cent to $1.2983. The Canadian dollar fell 0.65 per cent to C$1.3218 per US unit. All of them sank more than one percent at one point.

The Japanese yen also gave up 0.65 per cent to 105.195 per dollar .

Trump was narrowly leading Biden in Florida, while other competitive swing states that will help decide the election outcome, such as Georgia and North Carolina, remained up in the air.

That undercut expectations in markets this week that Biden will likely win the presidency and adopt a large stimulus to support the economy.

“If Biden won Florida, he was almost certain to win the entire race but uncertainties seem high and we are seeing a correction in risk-on trades,” said Yujiro Goto, head of FX strategy at Nomura Securities.

The dollar index measuring the greenback against a basket of currencies gained 0.7 per cent to 94.202.

Investors were increasingly braced for the possibility that the election results may not become clear on Wednesday, with markets hedging against the risk of a contested election or a potentially drawn out process as mail in ballots were counted.

Analysts at Morgan Stanley have said if the results are too close to call by 12pm EST on Wednesday (0500 GMT on Thursday), it will likely be too close to call for several days beyond that.

“A contested election probably takes all of the SPX, Bond yields and the USD (at least versus majors) down meaningfully,” said Alan Ruskin, chief international strategist at Deutsche Bank in New York.

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