Analysts at Rabobank explained that on September 30th, the US and Canada reached an agreement to bring Canada into the US-Mexico trade agreement that was announced on August 27th.
Key Quotes:
- “The new agreement will be called USMCA (United States-Mexico-Canada Agreement) and is set to be signed in the next 60 days.
- We expect the new agreement to pass through US congress regardless of the outcome of the midterm elections.
- In order for a deal to be made, Canada has agreed to allow more access to its dairy markets and to cap auto exports while the US agreed to back down on Chapter 19 (dispute panels).
- This was in line with our base case that a new trilateral agreement would be forthcoming but Canada would not back down on Chapter 19 but would be forced to give up ground on dairy
- All three countries have reached an agreement on resolution procedures for both existing and future Section 232 (national security) tariffs.
- Unsurprisingly, CAD and MXN have both rallied on the back of this news and while there’s no denying that this is a positive development, the market wasn’t pricing in a break-up and we see the overnight move as more to be faded than a change in direction.
- We leave our forecast for USD/MXN unchanged and still expect the pair to trade a 18.50-19 range over the next three months.
- We have revised down our USD/CAD forecast from 1.32 in one month and 1.33 in three months to 1.31 in one month and 1.315 in three months.”
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