Canadian Dollar Reaches 3-Month High as Canada and US Formally Agreed to Update the NAFTA

Market Reviews

US dollar and Swiss franc are steady, while Japanese yen is the weakest one, followed by Australian dollar and then euro. In Asia, Japanese Nikkei gained 0.56%. Singapore Strait Times increased by 0.12%.

The Canadian dollar rose sharply against the US currency, reaching a three-month high, as the US and Canada entered into a formal deal to update the North American Free Trade Agreement (NAFTA). The trilateral trade deal is now called the United States-Mexico-Canada Agreement (USMCA), replacing NAFTA.

The USMCA agreement would incentivize more auto production in the US. Canada also opens more access for US farmers on its dairy market, and agreed to eliminate the so called Class 7 milk system. There is no substantial change in the chapter 19 dispute resolution mechanism. If the US impose auto tariffs, both Mexico and Canada will be accommodated in “side letters”. But the deal doesn’t affect the current steel and aluminum tariffs imposed.

Business confidence in the sector of major Japanese producers worsened in the third quarter, reaching the lowest level in almost a year. Japan Tankan large manufacturing index dropped to 19 in Q3, down from 21 and missed expectation of 22. Large manufacturing outlook dropped to 19, down from 21 and matched expectations. Large non-manufacturing index dropped to 22, down from 24 and missed expectation of 22. Non-manufacturing outlook rose to 22, up from 21 and beat expectation of 20. Large all industry capex rose 13.4%, missed expectation of 14.2%.

China Caixin PMI manufacturing dropped to 50.0, down from 50.6. That’s the fourth straight monthly drop. The official China PMI manufacturing dropped to 50.8 in September, down from 51.3. Official PMI non-manufacturing rose to 54.9, up from 54.2. Japan PMI manufacturing was finalized at 52.5 in September. Australian Industry Group Performance of Manufacturing index rose 2.3 to 59.0 in September.

RBA rate decision will be a major focus this week. The central is widely expected to keep interest rate unchanged at 1.50% and maintain a neutral stance. US will release non-farm payroll report and trade balance on Friday.