Canadian Dollar Surges on New NAFTA Replacement

The Canadian dollar surged sharply against other major currencies on Monday, extending its rise from late last week, as President Trump aggressively promoted the newly-struck U.S.-Mexico-Canada Agreement (USMCA) as an "extraordinary" replacement for the longstanding North American Free Trade Agreement (NAFTA).

Prior to the deal being finalized over the weekend, the past several weeks had been fraught with uncertainty over the state of U.S.-Canada trade relations. The U.S. had already struck a trade deal with Mexico in August, which seemed to leave Canada - the third NAFTA partner - as the odd one out. This shaky status for Canada helped keep consistent pressure on the Canadian dollar against its major counterparts, including the relatively strong U.S. dollar.

Canadian Dollar Bounces Back

The situation changed dramatically in recent days as it became clearer that the U.S. and Canada would indeed reach an agreement that would ultimately become a new trilateral trade deal for the old NAFTA partners.

As a result, the Canadian dollar made sharp gains against the euro, British pound, Japanese yen and U.S. dollar, among others. Though the U.S. dollar was also up on Monday, USD/CAD showed an acute drop, which accentuated the strength of the Canadian dollar against the greenback. As USD/CAD fell, it broke down cleanly below both its 200-day moving average as well as the key 1.2900 support level, establishing a new four-month low in the process.

Source: TradingView

What's Next

The immediate future could potentially see further gains for the Canadian dollar, which should result in further losses for USD/CAD, as confidence continues to grow that Canada is once again on mutually beneficial trading terms with its largest trading partner.

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