The Canadian Dollar outperformed against its major counterparts, bolstered during the US trading session as reports crossed the wires that Mexico reached a partial deal on NAFTA with its northern neighbor. Local government bond yields also soared; the two-year reached its highest since October 2008. In the aftermath of the announcement, details from US President Donald Trump on the progress failed to offer more CAD gains. He noted that “we’ll see if Canada is separate or part of the Mexico deal”. Given current scenario where Canadian government has refused to come to an agreement unless the deal looks favorable to Canada, the proceedings could see Canada exit the NAFTA deal on President Trump’s continued America first approach. The USD/CAD pair lost some additional ground on Tuesday and dropped to fresh 2-1/2 month, below mid-1.2900s in the last hour.
Investors Focus on NAFTA Headlines as Canada is Expected to Come to Table Shortly
As of writing this article, the pair is trading at 1.2940 down 0.21% on the day. A bilateral trade agreement, aimed at replacing NAFTA, was struck between the US and Mexico on Monday. NAFTA optimism provided a strong boost to the Canadian Dollar and prompted some aggressive selling around the major. The pair fell over 110-pips from an intraday high level of 1.3067 and was further weighed down by a follow-through US Dollar selling pressure. The USD selling bias remained unabated on Tuesday and kept exerting some downward pressure on the major. Adding to this, a bullish consolidative price action around crude oil prices further underpinned the commodity-linked Loonie and did little to lend any support or provide any immediate respite for the bulls.
President Trump’s US-Mexico trade deal announced yesterday is basically an update NAFTA agreement. This plan will terminate NAFTA including the name and move over to a new agreement as per President Trump as Congress will have 90 days before voting. Unless US officials manage to bring Canada under fold within above mentioned duration, NAFTA will be tanked resulting in dissolution of one of longest standing agreement between Canada & U.S. and while bilateral agreements helps US relations with Canada, dissolution of trade deal with Canada will have dire consequence of US economy as US business sector has grown to be highly dependent on its trade with Canadian neighborhood and President Trump will be blamed for resulting fallout as he was the one to invoke sunset clause to try and strong arm US government’s most important ally Canada.
This article was originally posted on FX Empire
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