Reprieve for Peso, Loonie After Trump's About-Face on NaftaBy and
U.S. president says nation won’t quit free trade agreement
Mexican currency recoups most of 1.7 percent loss on Wednesday
Mexico’s peso and Canada’s dollar jumped after President Donald Trump said he wasn’t going to quit Nafta at this time, just a day after reports his administration might pull out of the free-trade agreement.
The about-face pushed the peso up 1.1 percent as of 11:56 a.m. in Singapore, recouping most of its 1.7 percent drop on Wednesday. The Canadian loonie advanced 0.6 percent, halting a four-day decline. The Mexican currency has been on a roller-coaster ride since Trump’s election win, initially weakening on fears the U.S. would turn more protectionist before rebounding sharply as it looked like those concerns were overdone.
Trump has often blamed the North American Free Trade Agreement for hollowing out America’s manufacturing sector by relocating jobs to lower-cost Mexico, although he has softened his tone recently. Earlier this week, he fueled trade tension by imposing new duties on lumber imports from Canada and vowing to defend U.S. farmers against dairy protections in its neighbor.
“The scale of the move on both CAD and MXN is quite startling, showing how nervous the Nafta partners were that Trump might deliver on his harsh rhetoric,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “Of course, as we have seen on dairy and lumber recently, there can be plenty of trade friction within the Nafta framework.”
The U.S. president had spoken with his Canadian and Mexican counterparts and “agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” the White House said in a statement late Wednesday in Washington.
“I think Canada is going to get a bounce and I think Mexico should continue to strengthen because this was a pretty major headwind for both those currencies,” said Stephen Innes, a senior currency trader at OANDA in Singapore. “This opens the door for a bit of a buy-in on commodity currencies.”
— With assistance by Masaki Kondo