If Canada manages to strike a preliminary trade agreement on NAFTA, Short USD/CAD?
US and Mexico have reached an agreement to overhaul the North American Free Trade Agreement (NAFTA)
- US President Donald Trump met with Mexican President Enrique Peña Nieto yesterday on a conference call to discuss the key portions of NAFTA and has since made a near-final deal.
- Canada, not being on the bargaining table in recent weeks, are pressured to rejoin the negotiations today in Washington. Trump ratcheted up pressure on Canada to agree to the new terms on auto trade and other issues.
- If Canada does not accede to the new terms, US could pull out of NAFTA and enter into a new agreement with Mexico only. President Trump also threatened to slap Canada with 25% tariffs on auto imports.
- Mexican President Enrique Pena Nieto spoke to Canadian Prime Minister Justin Trudeau on Monday and urged Ottawa to rapidly rejoin the talks with the goal of getting a final NAFTA rewrite this week.
- Canada’s Foreign Minister Chrystia Freeland cut her trip to Europe short and booked a flight for Washington today. A Canadian foreign ministry spokesperson said earlier on Monday that Ottawa was encouraged by "progress" between the US and Mexico but cautioned that any new version of NAFTA would need to be beneficial for Canada before being signed off on by officials.
- If Canada manage to strike a deal with US, we could see a fall in dollar while all the other major currencies could extend their gains. The focus will then be into US and China, as investors hope that similar deals can be worked out.
- However, if for any reason the government of Canada and the United States do not reach a NAFTA agreement, the Canadian dollar could slide drastically alongside with the major currencies while investors will move back to US dollar.
USD/CAD is currently holding at its current price level 1.2950 and the support might not hold based on technical analysis. We could see price hit 1.2850 once support breaks.
Fullerton Markets Research Team
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