Kiwi loses ground as US trade deal boosts Canadian dollar

Monday 1st October 2018

The New Zealand dollar fell against a stronger Canadian dollar after news that a tentative new North American free trade deal had been reached.

The kiwi traded at 84.86 Canadian cents at 5pm in Wellington, down from around 85.35 Canadian cents at 8am and a similar level last Friday. It was at 66.14 US cents from 66.16 US cents last Friday in New York.

The Canadian dollar got a lift from the new agreement, dubbed the US-Mexico-Canada agreement or USMCA.

"The deal looks better for Canada than for the US. Canada looks to have pretty much held its ground," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

In a joint statement, United States Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland said "USMCA will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region."

The deal was reached only hours before a US-imposed midnight deadline. The US has agreed to keep Chapter 19, NAFTA's dispute resolution mechanism, intact, according to headlines from Dow Jones Newswires.

This is seen as a victory for Canada which wanted to retain a process to challenge anti-dumping and countervailing duty cases. However, in exchange, Canada will give US farmers greater access to its dairy market. Currently, anything that exceeds the quota gets hit by tariffs that can be up to 300 percent in some cases.

The trilateral text is due to be published shortly.

Looking ahead, investors will be watching for the Reserve Bank of Australia's rate decision tomorrow. All 25 economists polled by Bloomberg expect it will keep rates on hold at 1.50 percent. The global dairy trade auction overnight Tuesday will also garner interest for any signs that a slide in prices is stabilising.

The trade-weighted index was at 71.88 from 71.86. The kiwi lifted to 57.05 euro cents from 56.72 cents last week. It traded at 91.63 Australian cents from 91.46 cents on Friday in New York and rose to 75.35 yen from 75.21 yen.

The local currency was little changed at 50.76 British pence and was at 4.5432 Chinese yuan from 4.5439 yuan.

New Zealand's two-year swap rate eased 1 basis point to 2.02 percent while the 10-year swap eased 1 basis point to 2.88 percent.

(BusinessDesk)

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