The U.S. dollar was slightly stronger against its European counterparts overnight but saw significant losses to its North American rivals on news that the United States and Canada have come to agreement to revamp the North American Free Trade Agreement.
The news comes after months of uncertainty and after the U.S. and Mexico agreed to a deal over the summer. The new deal will go by the name “United States-Mexico-Canada Agreement” or USMCA. The breakthrough agreement will produce big changes for how cars and automobile parts will be made in North America as well as give American dairy farmers access to the Canadian market. Most changes will not come until 2020 after Congress and Mexican and Canadian legislatures approve the measures.
Winners and losers of the deal will be debated in the coming weeks and probably years. But overnight, the clear winners were the Canadian dollar and the Mexican peso, which both rallied nearly 1.0%. The Mexican peso has gained for four straight sessions against the greenback.
Later this morning, both Markit and ISM manufacturing data will cross the wires. There are also three different Fed speakers slated throughout the day which could cause some volatility. Fed Chairman Jerome Powell will speak at an event tomorrow afternoon. The economic docket this week is fairly light with the headline event coming in the form on Non-Farm payrolls on Friday morning.
The Euro is trading with headline risk surrounding the Italian budget. EUR/USD has weakened 1.5% over the past three days on speculation the Italian budget target proposal will cause friction within the European Union. While the Euro fell a bit overnight, it is staging a modest comeback this morning. The economic docket has not helped the common currency as data showed that factory output fell to the weakest pace in two years.
The Canadian dollar was the biggest beneficiary of the NAFTA 2.0 news, gaining nearly a full percent against the U.S. dollar overnight. The loonie is now 2.0% stronger since last Thursday’s close. The Canadian dollar is now at its strongest level in four months and may continue to rally now that the uncertainty over trade tensions will subside considerably. Oil continues to trade over 70$ a barrel which would give the loonie some additional strength.