Breaking News
0

Nafta or Not, North America's Other Two Currencies Are on a Ride

ForexJan 11, 2018 21:57
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Nafta or Not, North America's Other Two Currencies Are on a Ride

(Bloomberg) -- Anyone who thought it was better to downplay the risk of a Nafta collapse got a rude shock this week, when the Canadian and Mexican currencies sank against the U.S. dollar. The reason: Canadian officials said Wednesday it’s increasingly likely that U.S. President Donald Trump plans to dump the trillion-dollar trade pact.

The White House was quick to deny it. And today, Canada said it’s preparing new talks related to autos, signaling a potential breakthrough in one of the biggest Nafta sticking points.

Still, the sudden slide means implied volatility -- a measure of expected swings priced in options contracts -- has soared. For the Mexican peso and Canadian loonie, one-month volatility is trading near this year’s high.

“Markets have underestimated negative Nafta risks,” said Win Thin, the New York-based head of emerging markets at Brown Brothers Harriman & Co. “U.S. exiting Nafta unilaterally would be very negative for the Canadian dollar and the Mexican peso.”

Choppy trading will be the norm as negotiators head into the next round of Nafta negotiations, set for Jan. 23-28 in Montreal. One-month volatility captures market swings throughout the next set of talks.

It’s more than a battle of currency traders. At stake is a relationship between the three nations whose annual trade in goods totals about $1 trillion -- and even the business models of companies such as Ford Motor (NYSE:F) Co. and General Motors Co (NYSE:GM). that have adapted their supply chains to take advantage of the trade zone.

Yet the Nafta headlines also weighed on the expectations for a tightening in the Bank of Canada’s monetary policy. The probability of an interest-rate hike by the central bank at its meeting next week slipped to 71 percent Wednesday from 87 percent the day before, swaps pricing indicated.

“Nafta comments are a bit of a reality check for BoC tightening expectations at least,” said Shaun Osborne, the chief economist at Bank of Nova Scotia in Toronto.

For the peso, jitters over the North American Free Trade Agreement adds to uncertainty over Mexico’s July presidential election. The currency started the year as the best performer among major currencies, extending the rebound since September, but lost the post after Wednesday’s drop.

“If true, this is honestly a bomb for the Mexican peso,” said Juan Carlos Rodado, the New York-based head of research at Natixis SA, about the possibility of U.S. exiting the agreement. “If you add on top of Nafta noise the political uncertainty, the trend for Mexico’s peso is simple: weakness until July 1.”

Nafta or Not, North America's Other Two Currencies Are on a Ride
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email