The Canadian Dollar has had a very poor week so far week as investors start to question whether a lot of good news is already ‘in the price’ and whether a rate hike at next Wednesday’s BoC monetary policy meeting really is a done deal. USD/CAD touched a low of 1.2375 last Friday but after touching a high of 1.2490 in Europe yesterday, it then surged late in the New York afternoon to a high of 1.2578. The catalyst for this latest sell-off was concern over the renegotiation of the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico
A report by the Reuters news agency on Wednesday afternoon, citing two government sources, and picked up immediately by all the Canadian newspapers and TV channels said that Canada is increasingly convinced that President Donald Trump will soon announce the United States intends to pull out of NAFTA. President Trump has long called the 1994 treaty a bad deal that hurts American workers.
According to the Reuters report, “the US negotiating team has set proposals that have alarmed their Canadian and Mexican counterparts. Among the most divisive are plans to establish rules of origin for NAFTA goods that would set minimum levels of U.S. content for autos, a sunset clause that would terminate the trade deal if it is not renegotiated every five years, and ending the so-called Chapter 19 dispute mechanism”. A White House spokesman said “there has been no change in the president’s position on NAFTA”. Officials are due to hold a sixth and penultimate round of negotiations in Montreal from January 23-28.
In a new world of media engagement and direct communications with an audience, it is increasingly difficult to separate fact from fiction, and to determine what is real and what is fake news. This story’s sources are no doubt genuine, but their motives are unknown. Was it intended merely to extract further concessions or a genuine warning about future progress? We simply don’t know.
Whatever the case, in foreign exchange markets its often a case of shoot first and ask questions later. After Wednesday’s sharp sell-off, the Canadian Dollar opens in North America this morning at USD1.2570, GBP/CAD1.6930 and AUD/CAD0.9895.