Loonie Makes Most of US-Mexico Trade Deal but Will Struggle from Here, Says TD

The past 24 hours in markets have been dominated by news that the US and Mexico have reached a preliminary trade deal. The Mexican peso initially gained as reports came in but now trades at pre-announcement levels. The Canadian dollar gained handsomely but is set to struggle from hereon in according to Toronto-Dominion Bank.

#News #CAD #MXN #USD
Email share     Facebook     LinkedIn    Twitter

Monday’s US-Mexican trade deal did less for the Mexican peso than it did for the Canadian dollar, most likely because an agreement with Mexico had been largely priced in, evident from the peso’s near-12 percent gain versus the dollar since June 15th. By contrast, prior to yesterday’s developments, the Canadian dollar had gained only 2.5 percent since the same date.

Conditions for a US-Canada agreement now look good, although Ottawa will likely still have to negotiate with a Washington team taking a hard-line approach.

Canadian dealmakers are, to an extent, backed into a corner. The US has indicated it may deal solely with Mexico and continues to threaten 25 percent tariffs on Canadian auto imports. Ottawa may be offered nothing more than a “take it or leave it” deal. “It’ll either be a tariff on cars [for Canada] or a negotiated deal,” Trump said on Monday.

Markets remain hopeful though, as are US officials.

“We are now inviting the Canadians in . . . and hope that we can reach a fair and successful conclusion with them as well,” a US official told Reuters.

As reports came in on Monday afternoon (in Europe), the Mexican peso initially gained a percent to 18.6 per US dollar, before giving back all gains. The Canadian dollar, by contrast, continues to hold its gain of 2 cents, or roughly a percent, at 1.294 – the loonie’s strongest level in 2 ½ months.

The next few weeks will be rough for the Canadian dollar, believes Toronto-Dominion’s FX strategist Mark McCormick.

Speaking to Bloomberg, McCormick suggested the loonie would weaken from here as traders shift attention back towards monetary policy and, specifically, to comments this weekend from Bank of Canada Governor Stephen Poloz – comments indicating that the BoC would take a “more gradual approach to normalizing interest rates than traditional models would advocate.”

The loonie could begin its stumble later this week, McCormick says.


Further Reading


New Year Optimism Retreats on US/Iran Tension

The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.

Last update: 8 Jan, 2020

AUD/GBP Between a Rock and a Hard Place – USD Strength


Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.

Last update: 7 Jan, 2020

Australia Cuts Interest Rates to Record Low

RBA Australian dollar AUD currency news and forecasts

The RBA has cut Australian interest rates to a record low of 1 percent in an effort to boost inflation. The Australian dollar is slightly stronger following the widely expected decision but is expected to lose 5–7 percent of its value before year-end.

Last update: 7 Jan, 2020


Posted to: News

Please note that the opinions of our authors are their own and do not reflect the opinion of Best Exchange Rates and should not be taken as a reference to buy or sell any financial product.

Get a Better FX Deal when you Send and Spend Abroad.


Do NOT follow this link or you will be banned from the site!