Analysts at ANZ Bank New Zealand, (ANZ), explained that the US and Mexico have reached a trade agreement that will replace a soon-to-be-terminated NAFTA bill, according to both Presidents in a joint announcement.
Key Quotes:
“At this stage, public details are still scant but talks over the past week have concentrated on the automotive sector.”
“Canada has still not been made privy to the deal but talks between the US and Canada is expected to start Tuesday(US time).”
“Trade representative Lighthizer said it will still be about three months until the new deal is put into law. That said, it does seem like there are still a few hurdles to clear first, and in particular the deal’s path through Congress.”
“While the US administration had been given special ‘fast-track’ authority by Congress to seek a new NAFTA deal, it is unclear whether that applies to a bilateral agreement like this one (ie a deal that does not include Canada). Even so, news of the deal still buoyed markets, although the currency market reaction was a little more interesting.”
“Unsurprisingly, the Mexican peso gained as did the Canadian dollar too to be fair, and even the euro strengthened as it perhaps signals greater odds of a trade breakthrough between the US and EU (although a stronger IFO probably helped too).”
“However, the NZD – and to a lesser degree – the AUD, were somewhat reluctant participants in this risk rally. And there is likely one reason for that; China! Both NZ and Australia are far more leveraged to that story and while the PBoC is perhaps taking a more conciliatory tone here, visible progress on trade between the US and China is yet to be seen.”
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