NAFTA Hope Spurs Loonie, Peso

Word of a breakthrough in the automotive component of North American Free Trade Agreement discussions have negotiators and stakeholders dealing with an unfamiliar feeling: optimism.

Speaking at a Washington gathering of the American Association of Port Authorities, Canada's ambassador to the U.S., David MacNaughton, told reporters that he's feeling more upbeat than in the recent past because of progress on the automotive file, and a more general thawing of the frosty tone in earlier talks.

Some media reported on Tuesday evening that U.S. negotiators have dropped their contentious demand that all vehicles made in Canada and Mexico that are bound for the U.S. market must contain at least 50% American-made components.

That's a key concession on a critical industry, and has raised hopes that similar progress can be made in other areas. The Canadian dollar reacted almost instantly to the news on Tuesday evening, up nearly half a cent to back above the 77 cents U.S. level. The Mexican peso is up by slightly more, in percentage terms, against the U.S. dollar.

MacNaughton cautioned, however, that the auto issue isn't completely sorted out yet.

While all sides have already extended the negotiation period more than once, a loose deadline is starting to draw closer, as the U.S. and Mexico will be keen to have the NAFTA issue sorted before election campaigns in those two countries formally begin later this year.

Other experts cite other major sticking points, such as U.S. dissatisfaction with NAFTA's dispute resolution processes, desire for greater access to government contracts, a wish to see more openness to foreign investment and of course their opposition to supply management in agricultural industries such as dairy, as reasons not to assume a deal is imminent.