Analysts at Rabobank, point out that today’s announcement regarding NAFTA, is not a bilateral agreement between Mexico and the US, instead, is effectively two out of three parties agreeing to what a trilateral agreement should look like.
Key Quotes:
“President Trump announces US-Mexico trade deal. The plan will terminate NAFTA, including the name, and move over to a new agreement. Congress will have 90 days before voting. Negotiations to bring Canada into the fold will begin immediately.”
“The glass half full way view of today’s announcement is that two of the three parties needed for a new NAFTA have come to an agreement which is a huge step in the right direction. The glass half empty view is that the US has come to an agreement with Mexico as tri-party talks had stalled and now it plans to use the agreement with Mexico as a way of strong arming Canada into an agreement.”
“Today’s announcement does make a new NAFTA agreement more likely (even if it won’t be called NAFTA anymore) but it also increases the risk that an agreement will not be reached with Canada and eventually we’ll see a move to bilateral agreements. In short, one thing we can say for certain after today is that the tails have fattened.”
“USD/MXN fell around 1.2% on the news while USD/CAD fell 0.75%. Support for USD/MXN now sits at 18.42 while USD/CAD has broken through the 1.30 handle and the question is whether we close below there today. We tend to favour a long MXN/CAD position now.”
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