Morning Commentary: NAFTA 2.0

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

NAFTA 2.0 Share this story: Alan Rose Foreign Exchange Head Trader

The main news overnight has been a conclusion of a new and rebranded NAFTA deal struck at the eleventh hour last night. The acronym NAFTA will no longer be applied, and it will be called the U.S.-Mexico-Canada Agreement (USMCA). All three leaders from the respective countries can now sign the deal by the end of November, but it is unlikely to get voted on during this session of the U.S. Congress and will have to await Congressional approval until 2019.   What I find very interesting this morning is that the commentaries concerning this new agreement are quite diverse. The WSJ reports that significant changes were made to the old NAFTA agreement, but other commentaries refer to the changes as tweaks to the old NAFTA agreement and just a rebranding.   Regarding the foreign exchange market, the Canadian dollar and Mexican peso are both outperforming by nearly 0.75% today and are the top performers in an otherwise subdued session. Canadian interest rates are higher (greater potential for a Bank of Canada rate hike) while Mexican interest rates are lower today (less pressure to raise Mexican interest rates to protect the peso).   As with almost everything in life nowadays, politics plays a critical element. China is the largest trading partner of the U.S. but only 4 U.S. states have China as their #1 export destination. For 36 U.S. states, Canada is the top destination for exports. The potential fallout and disruptions to supply chains could have been catastrophic if no agreement could be found; this required compromise on both sides to avoid economic consequences. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: The British pound is stronger today on the back of a stronger than expected September Manufacturing PMI rising to 53.8 against consensus estimates of 52.5. The stronger performance was led by rising new order growth and revived domestic demand.

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