NAFTA is a cause for concern for CAD
The Bank of Canada (BOC) decided raise rates last week after positive economic data, particularly unemployment, which plunged to the lowest levels in forty years. Common belief would be to assume a rate hike means a stronger currency, this is not always the case.
The market moves on rumour as well as fact and the rate hike was anticipated following the release of the unemployment data so the hike was already factored into the exchange. There is also the matter of the North American Free Trade (NAFTA) agreement which has held back the loonie.
Mexico and Canada are heavily reliant on the US purchasing their exports and the NAFTA deal has served both Canada and Mexico well. Donald Trump however is far from happy with current terms as he continues with his “America comes first” plans. Trump stated it is the “worst trade deal in history.”
The deal is currently being renegotiated and the negotiations are not going well. Trump’s demands are considered to be unrealistic. The US has introduced a number of proposals into negotiations that are inconsistent with the principals of free trade.
There is the possibility the US could withdraw from the deal completely which could have severe implications for Mexico and Canada. It is predicted a NAFTA withdrawal could cause as many as 1.3 million job losses and a significant hit to Canada’s and Mexico’s imports from the US.
If you have a trade involving the Canadian Dollar keep a keen eye on NAFTA talks it has the power to influence Canadian Dollar value. The present situation does not bode well for CAD.
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