marctomarket.com / by Marc Chandler / Oct 16, 2017
(Greetings from San Francisco, where I will be speaking at a CFA seminar on currencies tomorrow. The rebuilding from destruction of the of hurricanes in Texas and the Southeast US has already begun and the distortion to US high frequency data is seen nearly every day. Some data, like auto sales and retail sales were lifted, and others like non-farm payrolls were depressed. Several fires continues to burn in northern California. At least 5700 structures are estimated to have been destroyed and over 217k acres have been affected. The economic and human toll continues to rise).
In a relatively quiet week for economic data, except for the UK, we suggested that politics may trump economics. Today, the Canadian dollar is the weakest of the major currencies, losing about 0.5%, while the Mexican peso is the poorest performer among emerging market currencies, losing closer to 1%. The move began last week. Over the past five sessions, the Mexican peso is the weakest currency in the world, losing 2.2% against the US dollar. The Canadian dollar is up 0.1% over the past five sessions that make it the worst of the major currencies.
The key consideration is NAFTA negotiations. Recall that US President Trump initially threatened to withdraw but was persuaded to negotiate a reformed deal. He preference for bilateral agreements over multilateral agreements seemed an issue of principle.
There are two ways to read the US demands. The first is from the perspective of “The Art of the Deal” where strong demands are made to forces a favorable compromise. The second is that making unreasonably onerous demands may force a collapse of the agreement that the US President has called among the worst in history. The domestic content proposal and the sunset provisions, as well as other positions, do not seem acceptable to Mexico and Canada at this juncture. The US Chamber of Commerce has come out critical of the White House position.
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