Good News for US Dollar as Trump Kicks Canada Out of Deal

Jacob Friedman

A mooted three-way deal between the major economies of North America looks set to be off after US President Donald Trump promised to move ahead without Canada on board.

The US struck a deal with Mexico last week to replace the North American Free Trade Agreement or NAFTA, and the approval of Canada looked set to be the last remaining hurdle.

However, the talks between the two major economies then collapsed, suggesting that no replacement deal is forthcoming.

“There is no political necessity to keep Canada in the new NAFTA deal,” President Trump posted on one of his favourite mediums, Twitter.

“If we don’t make a fair deal for the U.S. after a decade of abuse, Canada will be out. Congress should not interfere with these negotiations or I will simply terminate NAFTA entirely & we will be far better off.”

The woes for global free trade were exacerbated even further as attention started to turn to Thursday when the deadline for stakeholder responses to Donald Trump’s plan for further Chinese tariffs ends.

While the US’ next move is not certain, it is understood that Trump is ready to move ahead with adding another $200 billion in tariffs on imports from the country.

The developments mean that more investors have flocked to the US dollar, as it is considered a less dangerous currency during periods in which trade barriers appear to be springing up.

As a result, the dollar index, which assesses the performance of the greenback compared to six other major worldwide currencies, climbed a little to 95.182 overnight.

The euro suffered somewhat following this rise and went down by 0.1% to a position of $1.1595. The pound also dropped.

The China-related development in particular created problems for the Australian dollar, which is often seen as a proxy for China because of the deep economic ties between these two important nodes in the Asia-Pacific economic system.

Last Friday, the AUD/USD pair saw lows of $0.7177, which is its lowest point since the start of 2017. Despite some rises, it fell again to $0.7187 following the latest round of trade developments.

This week is again a busy one in the forex markets, and there are lots of economic calendar events on the horizon.

Despite the US and Canada dominating the forex news scene today, both countries are celebrating the Labour Day holiday, meaning that it may take until all market participants are back to full speed on Tuesday or Wednesday to see the full impact of the developments.

Later today, the Bank of Japan’s governor Haruhiko Kuroda will make an important speech, and those who trade the JPY are likely to see some indications of the Bank’s plans for monetary policy.

The Reserve Bank of Australia’s interest rate decisions will come overnight (GMT), while British inflation report hearings will dominate the day in Europe on Tuesday.

Australia will be back in the news on Wednesday, meanwhile, when its gross domestic product information for the second quarter of the year will come out at 1.30am GMT.

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