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Are NAFTA Negotiations Changing the Currency Game?

October 17, 2017
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As one of the most highly valued trade agreements in the world, NAFTA has a massive impact on the values of its member states’ economies and currencies. Now that the renegotiation process is in full swing, we are starting to see the effects the talks are having on the market.

On Monday, BNN reported that:

Mexico’s Finance Minister Jose Antonio Meade…[said] that the peso’s recent depreciation reflects uncertainty about the NAFTA renegotiation process and questions about how quickly the U.S. Federal Reserve will normalize rates.

That depreciation has been rather intense as well;  “the peso slipped over 1.0 per cent against the dollar on Monday to its weakest level since May 18. It has shed about 4.5 per cent this month.”

Credit Suisse strategist Alvise Marino said:

“The fact that the peso continued to underperform early in the week, while the rest of emerging-market [currency] rebounded suggests that markets are preparing for the possibility of an adverse outcome from this round of negotiations,” – via Marketwatch

The fact that the renegotiations are hitting Mexico so hard should be of no surprise. During his campaign, President Donald Trump often pointed to Mexico as the main problem with NAFTA, citing a massive trade deficit. As a result, the fact that talks have the Mexican Finance Minister and the Peso worried is to be expected.

However, there is another party that often gets overlooked in the NAFTA saga, and that is Canada. After a softwood lumber crisis this summer, it soon became clear that Canada would also be fighting a tough battle. This was made all the more clear with the Boeing/Bombardier fiasco late last month (click here to read more on that).

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While the Canadian dollar is holding firm for now, this could all change as we move into the second half of the scheduled talks. As the timetable becomes shorter and shorter, we could see the administration put the pressure on its negotiators to get some harsher, “America First” policies through. These would likely shake up the markets even more.

Currency traders should stay up to date with the NAFTA negotiations to stay informed about what may be coming next for the market. With the Mexican Peso already in flux, the market seems set for a volatile ride up until the day that a new treaty is settled or is scrapped.

To read BNN’s article on the shrinking Peso, click here.

To read Marketwatch’s article on the changes in the currency market as a result of NAFTA negotiations, click here.

 

 

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