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Mexico's peso could sink to a record low after Donald Trump assumes the U.S. presidency on Friday if he unveils any aggressive actions that could hammer the exports of Latin America's No. 2 economy, traders and analysts said.
Mexico's peso has sunk more than 16 percent since Trump won the election. Trump threatened to rip up or renegotiate the NAFTA free trade deal with Mexico and Canada and impose tariffs on Mexican exports.
The peso hit a record low in January and traded close to that low just above 22 per dollar on Thursday.
Traders and economists said the peso could shoot toward 23 per dollar or even 24 per dollar if Trump takes a harsh tone on trade in his inaugural address or announces any concrete measures, such as imposing tariffs on goods from Mexico.
"There is a lot of anxiety in the market," said Marco Oviedo, an economist at Barclays in Mexico City, who said the peso could hit 23 per dollar if Trump would take any bold action.
"We don't know what is the value of the peso because we don't know what is the final policy. It has been really, really exhausting to imagine what he could do."
Trump is expected to sign an executive order in his first few days to direct the building of a wall on the southern border with Mexico.
Mexico's peso dropped 2 percent on Wednesday after Trump's choice for commerce secretary, Wilbur Ross, said renegotiating the North American Free Trade Agreement would likely be the incoming administration's first priority. Mexico sends nearly 80 percent of its exports to the United States.
Traders and analysts said the peso would likely trade around current levels if Trump only confirms that idea of renegotiating NAFTA on Friday.
"The peso could rally on anything that suggests a firmer outlook for U.S. growth with no significant trade restrictions," said Goldman Sachs economist Alberto Ramos.
Trump's nominee to run the Treasury Department, Steven Mnuchin, on Thursday said Washington can renegotiate NAFTA in a way that benefits both the United States and Mexico.
Mexican authorities have said they are prepared to intervene in the market with dollar sales if peso movements becomes disordered. The central bank sold US$2 billion in early January to support the currency.
Economists said the central bank would be unlikely to intervene if the peso was moving to adjust to concrete plans by Trump that would affect Mexico in a fundamental way.
