NAFTA trade talks between the US and Canada are resuming today – and this certainly is not expected to be a quick resolution period. Indeed, negotiations already started last Tuesday and finally came up with no clear agreement on any single topics discussed, including agriculture, where US trade representative Robert Lighthizer office gave a statement on Friday complaining that Canada was not making any concessions on this subject. A situation that is not going to facilitate Bank of Canada business, whose monetary policy path will be put aside in the current situation.
Although recent negotiations on the agriculture matter did not come up with a solution straight away with its US counterpart, recent negotiations on the matter have proven to be successful in the past. This is the case for instance with the EU, where Canadian authorities signed a new trade agreement with the EU one year ago named the Comprehensive Economic and Trade Agreement which simplifies exports of goods and services from the EU or Canada and which eliminated 98% of tariffs between both countries, including on dairy products.
Additional topics such as maintaining original NAFTA dispute settlement mechanism include countervailing or anti-dumping duties, steel, aluminium tariffs and a cultural exemption clause (protecting Canada’s cultural sectors such as media) will be discussed in the coming weeks.
Accordingly, as negotiations are on progress, the BoC is expected to remain cautious at today’s MPC meeting, hoping that NAFTA negotiations will be concluded in a successful manner and maintaining its Overnight Lending Rate stable at 1.50% after rising it during last meeting on 11. July 2018 by 25 bps.
Continued weakness is expected for the loonie. Trading along 1.32, USD/CAD is heading along 1.3210 in the short-term.
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By Vincent Mivelaz