NAFTA Down To The Wire

USD/CAD hit a fresh 4-month low at 1.2850 amid optimism over a NAFTA deal following Friday’s gains, which were triggered by strong GDP numbers. NAFTA negotiators are pressing to meet a Sunday deadline to complete a trilateral deal. News reports say nearly all of the substantial work is finished. CFTC positioning showed yen shorts at the highest since March as USD/JPY hits a 9-month high. A new CAD trade for premium clients has been issued accompanied by 5 important reasons (especially 2 & 3).

USDCAD Weekly Chart

USD/CAD fell 135 pips on Friday and closed on the lows on very-late breaking news that Mexico was making a final push. The pair finished at 1.2908 and has an August/Sept double bottom near 1.2885 that is certain to be broken in a move that may clear the way for a sustained Canadian dollar rally. But the 200-DMA of 1.2870 has so far been broken.

If a deal is struck, especially one that precludes auto tariffs against Canada, could be a massive tailwind for Canada. If a US-China trade war continues as expected, the winner is Canada, who will be selling things to both sides tariff free.

Recall, the latest round of tariffs against China went into effect last week includes 5,750 product lines that cover about $200 billion of annual Chinese exports to the US. In those categories alone, Canada exports $158 billion to the US. That’s easily more than any other country or region.

Also on the weekend, the China PMIs showed a dip in manufacturing but a rise in the non-manufacturing surveys.

The manufacturing survey was at a seven-month low of 50.8 compared to 51.2 expected. Non-manufacturing rose to the highest since June at 54.9 compared to 54.0 expected. Aside from CAD and MXN trading, watch for a soggy start to the week in Asia as Typhoon Trami bears hits Japan.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by – long by +.

EUR +4K vs +2K prior GBP -67K vs -79K prior JPY -85K vs -64K prior CHF -16K vs -18K prior CAD -20K vs -30K prior AUD -72K vs -68K prior NZD -32K vs -32K prior

Cable shorts came down from an extreme just as the pair rolled over last week. However yen shorts were perfectly timed as the pair ripped higher after the FOMC.

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