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Mexican Peso Rallies on US-Mexico Trade Agreement

August 27, 2018 at 18:09 by Andrew Moran

Mexican 50-peso notesThe Mexican peso is rallying against its American counterpart on Monday after officials announced a new US-Mexico trade agreement that would scrap the North American Free Trade Agreement (NAFTA) name because of “bad connotations.” The two nations will now wait to see if Canada will agree to a bilateral pact with Washington.

After months of tough negotiations, the US and Mexico reached a deal that they say will benefit farmers and manufacturers on both sides of the border. The new deal will last 16 years and mandate a review every six years, which is something similar that Canadian Prime Minister Justin Trudeau objected to in the spring because he did not like the idea of a five-year sunset clause. The pact will eliminate a cap on imports of light vehicles from Mexico, stipulate a certain amount of North American aluminum and steel consumption, and boost purchases of US agriculture.

It will now require congressional approval with a 90-day window.

President Donald Trump called it “a big day for trade”:

It’s a big day for trade, a big day for our country.  A lot of people thought we’d never get here because we all negotiate tough.  We do, and so does Mexico.  And this is a tremendous thing.

This has to do — they used to call it NAFTA.  We’re going to call it the United States-Mexico Trade Agreement, and we’ll get rid of the name NAFTA.  It has a bad connotation because the United States was hurt very badly by NAFTA for many years.  And now it’s a really good deal for both countries, and we look very much forward to it.

US trade representatives will now concentrate on reaching a similar bilateral deal with Canada. President Trump said talks will resume and that a separate deal was possible, but it would depend on Ottawa, telling his Mexican counterpart:

It is our wish … that now Canada will also be able to be incorporated in all this.  And I assume that they going to carry out negotiations of the sensitive bilateral issues between Mexico — rather, between Canada and the United States.

The Mexican peso has had a difficult 2018 up to this point. At one point the currency neared 21.00 before gaining 8% against its US counterpart, though it has pared some of those gains in recent weeks.

The USD/MXN currency pair tumbled 0.77% to 18.7692, from an opening of 18.915, at 17:47 GMT on Monday. The USD/CAD fell 0.35% to 1.2981, from an opening of 1.3026.

If you have any questions, comments, or opinions regarding the Mexican Peso, feel free to post them using the commentary form below.