Canada: Focus on trade - Westpac

Progress on US rewriting of NAFTA with Mexico puts pressure on Canada to make concessions in order to re-enter talks and so engage in an effective trilateral replacement of NAFTA, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Media suggest that concessions on dairy could allow Canada to progress on talks as early as this coming weekend. However, PM Trudeau appears reluctant to compromise Canada’s dairy sector and any agreement is unlikely to be swift.”

“Trade will be highly relevant for next week’s BoC policy meeting. There is little chance for a Sep hike (market pricing is under 10%), but the tone of BoC’s statements will be key for Oct’s meeting (25bps hike is 90% priced in) but also policy in 2019.”

“Dep. Gov. Wilkins recently stated that they will be monitoring the effects of July’s hike. Employment and trade data are lag indicators and so the BoC will be monitoring both Markit & Ivey PMIs.”

“CAD posted sound gains over the past week and could be prone to retracements back to 1.30 if trade negotiations fail to meet current positive expectations.”