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US and Mexico reach trade deal, pressuring Canada as Mexican peso surges

On Monday The US and Mexico agreed to overhaul the North American Free Trade Agreement (NAFTA), threating to leave Canada out of the deal if the country did not comply with new terms.

IG Analyst

Publication date : 2018-08-28T02:46:00+0100

Trump

US President Trump said he would hit Canada with auto tariffs and leave them out of the deal, if they did not get on board.

Trump threatened to axe the trilateral trade and change the name from NAFTA to the “United States-Mexico Trade Agreement,” leaving Canada out.

'It’s a tremendous amount of money and it’s a very simple negotiation. It could end in one day and we take in a lot of money the following day,' President Trump said.

Auto stocks soared and the S&P500 and the Nasdaq reached record highs on Monday, reflecting the announcement.

Canadian shares in the auto industry jumped, with Linamar Corp up 6.3 %, Martinrea International 5.7 % and Magna International up 4.3%.

The Canadian dollar strengthened against its US counterpart, with investors betting that the agreement would include Canada, despite threats.

Negotiations among the three countries have been in the works for over a year, previously pressuring the Mexican peso and the Canadian dollar. However, Trump’s announcement caused a spike in the Mexican peso and the Canadian Dollar, both up higher, 1.3% and 0.3%.

Investors expect Canada to eventually comply with the new terms, putting to rest economic uncertainty caused by Trump’s threats to expel Canada from the NAFTA deal.

Canadian Foreign Minister is expected in Washington on Tuesday. The minister’s spokesperson said Canada would sign only a new agreement that is good for the country.

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