USD/CAD - Canadian dollar soars, The USMC (NAFTA) Agreement is Born

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Lady Gaga and Bradley Cooper are actively promoting their remake of the movie “A Star is Born” which is a fresh approach to an old tale. The U.S. and Canada are promoting their own remake of a trade deal.

The North American Free Trade Agreement (NAFTA) has been scrapped in favour of a new deal called the "United States Mexico Canada Agreement" or USMC Agreement for short.

The Office of the United States Trade Representative heralded the deal by saying the "Agreement highlights are: •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, Anti-corruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the Agreement."

President Trump was effusive in his praise of the agreement tweeting this morning: "Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico. The new name will be The United States Mexico Canada
Agreement, or USMCA. It is a great deal for all three countries, solves the many...... deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world. The USMCA is a historic transaction!”

Canada reportedly gave the American’s improved access to the dairy market, while accepting a cap on auto exports. The US agreed to exclude Canada from any future auto tariffs, consider repealing the tariffs on Canadian aluminum and steel and agreed to a third party dispute resolution mechanism.

News of an impending deal was greeted favourably in Asia. The Canadian dollar spiked higher at the open and then added to the gains in Europe and in early Toronto trading. The Canadian dollar gains are more to do with the removal of economic uncertainty and not because Canada secured a beneficial trade pact. Far from it. Canada is worse off under the new agreement then
it was under NAFTA.

Canadian dollar buyers emerged because the USMC Agreement gives the Bank of Canada more clarity about the domestic economic outlook. That clarity could lead to a faster pace of interest rate hikes if domestic economic growth continues at its current pace. Traders will be looking ahead to Friday’s employment report to see if it complements the better than expected Gross Domestic Product growth seen last week.

There aren’t any Canadian data on tap today which suggests the focus will be on fleshing out the details of the new trade pact.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates