Nafta is no more. It has been replaced by the United States Mexico Canada Agreement (USMC). Tell that to the Marines, who have owned that acronym since 1776.
The US and Canada came to an agreement late Sunday night. The US Trade Representative says: “Agreement highlights include:
- Creating a more level playing field for American workers, including improved rules of origin for automobiles, trucks, other products, and disciplines on currency manipulation.
- Benefiting American farmers, ranchers, and agribusinesses by modernizing and strengthening food and agriculture trade in North America.
- Supporting a 21st Century economy through new protections for U.S. intellectual property, and ensuring opportunities for trade in U.S. services.
- New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the Agreement.
Apparently, Canada conceded improved access to the domestic dairy industry, (reportedly a mere 5% ) and a cap on auto-exports., which are supposedly free from tariffs. Existing tariffs on Canadian steel and aluminum exports to the US are still in place, but being reviewed.
The US conceded their opposition to a third party dispute resolution process.
USDCAD gapped lower at the Asia open, falling to 1.2850 from 1.2908 at Friday’s close and then dropped further in European trading.
No matter how you slice it, Canada is worse off under the USMC deal that it was under Nafta. However, the impact on the domestic economy won’t know for years. What is known is that the USMC Agreement takes the blinders off the Bank of Canada, improving its domestic economic outlook. It is a bit of a stretch to believe that the BoC Governing Council didn’t consider the prospect of economic chaos and 25% auto tariffs in their policy deliberations.
Elsewhere, Australia and China markets were closed for holidays. USDJPY was underpinned by a weaker than expected Tankan report noting that Business Sentiment among large manufacturers worsened for the third quarter in a row. Firmer US Treasury yields also supported prices which rose from 113.67 to 114.00 at the New York open. AUDUSD opened flat, and NZDUSD is slightly below flat in early New York markets.
EURUSD dropped in Asia, rebounded in Europe and opened in New York at 1.1616, just above Friday’s 1.1603 close after trading in as a 1.1575-1.1627 range. Slightly better than expected Eurozone unemployment rate (Actual 8.1% vs forecast 8.2) offset a weaker Manufacturing PMI index which came in at 53.2 vs a forecast of 53.3. Sterling held to a narrow 1.3024-1.3058 range.
US sanctions on Iran have underpinned crude prices. WTI is in the middle of its overnight range of $73.28-$73.62/barrel range.
The major US data today is ISM Manufacturing. USDCAD traders will focus on getting more details about the USMC agreement. BoC Deputy Governor Timothy Lane is also speaking, and he could touch on the trade developments.
USDCAD Technical Outlook
The intraday USDCAD technicals are bearish following the break of the uptrend line that begain in February which came into play in the 1.2890-1.2905 area. The drop extended below the 50% Fibonacci retracement level of the February-June range (1.2260-1.3385) which targets the the 61.8% level (1.2690) and the 76.4% level 1.2527. For today, USDCAD support is at 1.2740 and 1.2690. Resistance is at 1.2830 and 1.2890
Todays Range 1.2720-1.2820