Loonie likes NAFTA
By Vincent-Frédéric Mivelaz
Canadian dollar bulls are celebrating. Renewed optimism on NAFTA has pushed USD/CAD lower, as US-Canada trade talks resumed yesterday. Both US President Trump and Canadian Foreign Minister Chrystia Freeland confirmed that negotiations are on track, with both ready to make concessions. USD/CAD continues to weaken amid stronger loonie against major currency pairs. The pair is heading along 1.3035 in the short-term.
Canadian negotiators appear willing to provide restricted access to its domestic dairy market in exchange for a broadening of the trade dispute settlement mechanism, along with cultural protection of Canadian media firms and finally steel and aluminium tariffs. Time is short: an agreement must be reached by end September, as the Trump administration will have to deliver a finalized agreement to Congress, including bilateral (with Mexico only) or trilateral terms, if agreement is found. Political support is at stake. Canadian PM Trudeau’s party strongly relies on Ontario and Quebec, where most dairy farmers are. Trump’s Republicans could face a reversal in November elections if no deal is settled.
AUD falls to 3.5 year low
By Arnaud Masset
On Tuesday the Australian dollar slid to its lowest since February 2016, reaching 0.7085 against the greenback. Even though the US-China trade conflict has weighed significantly on the Aussie, it is not the only factor: Australian are more and more pessimistic. Three of the four largest lenders are increasing mortgage rates, there is persistent pressure on household budgets as well as political instability.
The centre-right movement could lose its parliamentary majority, as it will face a by-election on October 20, following Malcom Turnbull’s resignation from parliament last month. Given the popular dissatisfaction generated by political turmoil, voters will be tempted to punish the ruling conservative coalition. With the interest rate differential between the US and Australia continuing to narrow and Trump’s tendency to add fuel to the fire (which could make negotiations with China more difficult), the Australian dollar is not out of the woods yet.