In what was considered well overdue by most traders, last week has seen a NAFTA framework deal agreed upon by the United States, Canada and Mexico, which finally revamps the free trade agreement after a year or so of negotiations. The market reacted positively to the new and improved deal, which is due for completion by the Sept 30th deadline.
Elsewhere, on the data front, last week saw the release of the ISM Manufacturing PMI, which came in at 59.8 vs 60.1 expectations and was slightly lower than the previous month of 61.3. The US dollar was also bolstered by commentary from Fed Chair Jerome Powell, who suggested the U.S economy was continuing to grow at a rapid pace and signs were “remarkably positive,” intimating the Fed will continue to raise interest rates as planned.
This hawkish commentary combined with continued strong domestic growth paint a positive picture moving through the latter half of 2018 and onward into 2019 for the USD, a stark contrast to broader global uncertainty and measured macroeconomic policy outlooks. While an argument can be made for a widespread USD correction, the strains of emerging markets should continue to fuel demand for the greenback while the potential burgeoning gap in central bank interest rates ensures the dollar remains an attractive carry option.