Canadian Dollar Rallies On Hopes of Closing NAFTA Deal

Canadian Dollar Rallies On Hopes of Closing NAFTA Deal
September 19, 2018

 

Business and political leaders are placing increasing pressure on the Canadian Prime Minister, Justin Trudeau, to agree on an arrangement to renew NAFTA and to refrain from saying that no deal is better than a bad one. With negotiations between the Canadian Secretary of State, Chrystia Freeland, and US Trade Representative, Robert Lighthizer, due to start today, the market hopes that an agreement will be reached between the two parties. This is turning the Canadian dollar bullish against the greenback, which is down on easing uncertainty.

 

NAFTA Agreement & Canadian dollar

Trump came to power last year and threatened to tear NAFTA apart unless major changes were made to a pact that he blamed for job losses in production. The White House finalized a sub-deal with Mexico last month, and Trump, at that time, made it clear that he was ready to exclude Canada if needed. But defenders of Canadian negotiation tactics have argued that there is little to fear. They argued that the US Congress would never approve a bilateral NAFTA agreement that omitted its northern neighbor, and yet, things are not moving smoothly for Canada.

Yesterday, a House Republican cautioned there was a “growing frustration” in Congress over Canada’s inflexibility, and suggested it make the compromises needed for a “fair” deal. Foreign Minister, Chrystia Freeland, understands the consequences of a lack of Agreement and said she would hold new talks on the North American Free Trade Agreement with the US Trade Representative, Robert Lighthizer, in Washington today, as the 1st of October deadline imposed by the US looms.

Freeland defended Trudeau’s stance, telling reporters “any negotiator who goes into a negotiation believing that he or she must get a deal at any price … (will) be forced to pay the maximum price for that deal.”

The two sides are far-off in certain areas, and Trudeau says that his open-minded administration will go away if required. The United States is buying 75% of Canada’s exports, and President Donald Trump threatens to slap tariffs on automobiles.

John Manley, the former Liberal finance minister who heads the Business Council of Canada, which chairs many CEOs, said: “The problem with the bold statement that ‘No deal is better than a bad deal’ is that a bad deal is very much in the eye of the beholder.”

The Republican House’s Majority Whip, Steve Scalise, expressed “a growing frustration with many in Congress” over Canada’s negotiation strategies and cautioned that Canada could be excluded from NAFTA.

In the meanwhile, US business leaders pushed the government on Tuesday to take in Canada in the trade deal with Mexico. Nancy Pelosi, U.S. House of Representatives Democratic Leader, warned the Trump government that NAFTA ought to be preserved as a trilateral accord between the United States, Mexico, and Canada and not just as a US-Mexico arrangement. Pelosi’s comments are noteworthy since whatever arrangement to restore the North American Free Trade Agreement is eventually reached, will be looked into by the next Congress that assembles in January. Pelosi may well be the speaker of the House if Democrats triumph in this November’s congressional midterm elections. Pelosi’s statement and fresh attempts by the Canadian negotiators to arrive at an amicable NAFTA deal is turning the Canadian dollar bullish.

The US dollar, in the meanwhile, has started weakening after the Chinese retaliated with an import duty on the US goods worth $60 billion. Trump had announced tariffs on $200 billion worth of Chinese goods on Monday. The easing uncertainty is weakening the dollar while bolstering riskier assets. Therefore, we can expect the Canadian dollar to gain ground against the US dollar in the week ahead.

Technically, the price chart indicates that the USDCAD pair has broken the support at 1.2980. Furthermore, the oscillator of moving average is in the negative zone. Therefore, we can expect the greenback to move down further.

cad - technical analysis - 19th September 2018

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

 

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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