Dollar Falls against Canadian Dollar on NAFTA Developments

The US dollar fell against its Canadian counterpart on Monday as the US and Canada reached a new agreement, along with Mexico, to revise the North American Free Trade Agreement (NAFTA).

The US dollar index, which measures the greenback’s strength against a basket of six major currencies, was down 0.1 percent to $94.69, hovering below its more than two-week high of 95.37 booked on Friday.

In the third quarter, the dollar index reached its second consecutive quarterly gain, increasing over half a percent.

Following news about the framework deal, the Canadian dollar climbed around 0.7 percent, hitting a four-month high of 1.2814 before losing some of the gains. The dollar last stood 0.8 percent lower to 1.2801 against the Canadian dollar.

The Canadian dollar added to past session’s gains of more than 1 percent.

Against the Mexican peso, the greenback dropped 1 percent to 18.53. The Mexican peso reached a seven-week high of 18.54 versus the dollar at one point.

Meanwhile, the dollar added 0.2 percent to 113.98 against the yen after the safe-haven currency slipped to 113.96 per dollar, its lowest since the middle of November 2017. The greenback has advanced for four straight weeks against the yen, including the almost 1 percent gain last week.

US and Canada Settles Deal to Renew NAFTA

Strength of the Canadian dollar came as the US and Canada reached a new trade deal to renew the current NAFTA.

Though the markets were already anticipating an agreement, one source of worry will be swept away if a deal is made and that will lead to a rise in trust in the US economy, so it is easy for risk sentiment to improve, according to senior currency strategist Yukio Ishizuki.

The Canadian dollar is really strong today, and together with that, it is easy for currencies from resource-dependent and emerging market countries to rise, putting selling pressure on the dollar, Ishizuki added.

A senior US administration official stated that the new arrangement, which has been deemed the United States-Mexico-Canada Agreement (USMCA), will involve larger US access to Canada’s dairy market and a side-letter deal that will effectively cap its car exports to the US.

US farmers will have access to about 3.5 percent of Canada’s dairy market, according sources familiar with the matter.

Canada is also reported to have established some protections for its automobile industry against potential US tariffs. Sources said US duties on steel and aluminum will remain for the time being.

The deal will also update what was already covered by NAFTA by including policies on digital trade and intellectual property, the administration official said.

The leaders of the three North American countries are expected to sign the accord before the end of November, after which it would be submitted to Congress.

US President Donald Trump’s administration had stated that Canada must sign on to the text of the modernized NAFTA before Monday local time or face exclusion from the deal. The US has already settled a side deal with Mexico.

While Canadian Prime Minister Justin Trudeau has maintained his stance on not agreeing to an accord that was not in Canada’s best interests, they will be waiting to get a full grasp of what concessions were made in the final hours to secure the pact.

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