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US, Mexico, Canada agreement has been announced and equities are supported


The dollar was sold off on Friday afternoon on the back of month-end and quarter-end re-positioning. US data wasn’t particularly helpful to the dollar’s cause with Chicago PMI, amongst other sets of lower-tier data, printing weaker than expected on the day.

In other recent news, a NAFTA framework deal has been agreed between the United States, Canada and Mexico, which revamps the free trade agreement after a year or so of negotiations. Moreover, there was an agreement between parties to allow US farmers more access to Canada’s dairy market and concerns about potential US auto tariffs were suitably addressed. So far, it hasn’t had too much of an impact on the value of the US dollar index.

Data wise, it’s a busy week for the US, with ISM Manufacturing PMI, ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI and Average Hourly Earnings + Non-Farm Employment all due for release.

Canadian and US trade negotiators came to a consensus last night ahead of the deadline of midnight yesterday. The agreement which is an updated version of the over twenty-year-old North American Free Trade Agreement will be called the US-Mexico-Canada Agreement or USMCA. Moreover, there was an agreement between parties to allow US farmers more access to Canada’s dairy market and concerns about potential US auto tariffs were suitably addressed. The new deal is in time for the outgoing Mexican president Enrique Pen Nieto to sign before he leaves office at the end of November. The US Congress is expected to approve the new version up until next year ahead of US elections.

Both the loonie and the peso are higher this morning, and North American markets are pointing to a positive open. Crude oil continues to push higher trading as high as 73.68 before settling down to 73.35 at the NA open.

USMCA will likely keep the loonie well supported into the start of this week. Later on, in the week, attention will no doubt turn to employment data both from the US and Canada, released at the same time at 8:30 am Friday.

EUR/USD fell below 1.16 on Friday as Italy’s coalition government announced budget plans that would push its deficit to three times the size of its spending gap, sending the country on a potential collision course with the EU. Italian government bonds dropped, bank stocks were sold off, and the yield on Italian debt rose to 3.2% on Friday as a result.

The euro/dollar continues to trade at the 1.16 handle, while the loonie has made significant gains on the euro after a US, Mexico, Canada agreement has been made. The Canadian dollar has risen over 2% against euro since the news broke last night and further gains could be take heading into and during the North American open.

GBP/USD drifted lower on Friday following the release of weaker than expected Q2 final GDP. It didn’t take too long to recover, though. Quarter-end flows – or dollar selling - kicked in as North America came online, and GBP/USD moved higher, albeit the range on the day was relatively limited.

There wasn’t much by way of Brexit headlines last week, but that may change this week with the Tory conference in full swing, and the potential for various in-party clashes on the subject. Should this be the case, GBP/USD will do well to hang on to the 1.30 big figure. The main event will be PM May’s speech on Wednesday.

On the data front, we have manufacturing, construction and services PMI due for release on Monday, Tuesday and Wednesday respectively, although it’s questionable that these will have much impact while the Conservative conference is ongoing.

It was a public holiday in Australia and China on Monday, and so we haven’t seen much action in the AUD/USD pair overnight. It opened at .7220 in London and is not far off that figure ahead of the North American open. The pair remained well supported above the .72 figure since Friday.

The RBA is due to make their monetary policy announcement tomorrow, albeit no change in rates and little change in the accompanying statement is expected. The central bank may refer to the decision by many Australian retail banks to raise mortgage rates recently, but that’s about it. To this point, AUD/USD will likely continue to take its lead from offshore risk events

The New Zealand dollar opens this morning at 0.6604 following in line with last week’s moves after the RBNZ said they would hold interest rates at record lows for the foreseeable future. Guidelines in Governor Orr’s remarks were that the next move could be either up or down but remarked that the cash rate would be around these levels into 2019 and 2020. The central bank also stated that inflation remains in the mid-point of the target range.