NAFTA Could Be In Trouble; Euro Rises On ECB Positivity

The U.S. Dollar is trading in mixed ranges as the Euro was the primary counterpart to rise against it while other majors hit the brakes in their appreciation.

USD

Minutes from the last European Central Bank meeting revealed that officials are indeed satisfied with the economy except for the lack of inflationary growth.

Additionally, the decision by China to slow and eventually stop the purchase of U.S. treasury bonds put the greenback in a less favorable position than the Euro, which is becoming more attractive with the steady economic progress seen lately that makes it a safe asset in times of uncertainty.

More importantly, the dollar will likely suffer throughout the day as traders react to contraction in the Producers Price Index figures for December. PPI including and excluding energy costs was supposed to rise 0.2% per economists’ estimates, but it fell (-0.1%) instead. The yearly average expectation of 3.0% was not met and instead declined to 2.6%. Current performance on our side of the Atlantic is sure to keep the buck under pressure.

 

EUR

The Euro is up once again after a few days of giving ground to the dollar. ECB minutes showed that members agree the economic situation merits considering a gradual normalization, but it has to be done carefully, especially since inflationary growth is too slow for their liking. Furthermore, the governing council suggested that ECB communication should also “be adjusted gradually over time to avoid sudden and unwarranted movements in financial conditions.”

Basically, the ECB wants to avoid surprising markets and seems to believe in the efficiency of the Fed’s approach to telegraph moves ahead of time, thus preventing hurtful shocks. This shift in guidance is certainly a positive development for the Euro in the long-term.

 

CAD

The Canadian Dollar is trading at its weakest level in over two weeks following a very pessimistic report from Canadian officials on the future of the North American Free Trade Agreement (NAFTA). Officials spoke in anonymity, but explained that the country is already working on contingency plans as they foresee the U.S. abandoning the agreement, potentially this year. Per the rules, either one of the three countries must give six-month notice prior to leaving, which then is decided by the legislative bodies of each country if indeed the agreement is to be killed.

 

MXN

The Mexican Peso happens to be on the same sinking boat, also trending negatively because of speculation that the politics of Mexico will go far left and affect the friendly relationship with the U.S. The Mexican and American governments have experienced moments of friction in the past year. Subsequently, the economic pact in jeopardy only exacerbates economic anxiety, which currently is keeping Peso down and boosts chances of a change of the guard that would take an anti-American stance on many issues including the border.