The Canadian dollar fell against its US counterpart on Tuesday as investors grew more uncertain about the future of the North American Free Trade Agreement. Lower expectations of an interest rate hike in Canada and positive economic data in the United States widened the gap between the loonie and the greenback today.
Officials from the Canadian government have been renegotiating the terms of the NAFTA agreement with their US peers. The US demands are leaving only a small room for Canadian negotiators, which weighed on the future of the free trade pact that has been in place for about 23 years.
75% of Canadaâs exports go to the United States, which means that changes to the NAFTA agreement can deliver a massive blow to the nationâs economy. Investors had a bearish outlook for the Canadian dollar ahead of a joint statement that is scheduled to be issued later today.
The statement will summarize the outcome of a meeting between US Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland, and Mexican Economy Minister Ildefonso Guajardo.
Fears of possible changes to NAFTA affected investorsâ expectations of another interest rate hike from the Bank of Canada in the short term. Investors are weighing in a chance of about 20% for an interest rate increase when the central bank holds its next monetary policy meeting, down from 50% a month ago.
On the economic front, positive US data pushed the US dollar higher. Meanwhile, there were no major economic releases in Canada today. An index that tracks prices of US exports had a reading in September that was higher than expected, while a report on industrial production showed a level that matched estimates.
USD/CAD rose to 1.2566 as of 15:50 GMT on Tuesday after touching 1.2584 at 14:40 GMT, the pairâs strongest level since October 6. USD/CAD began trading today at 1.2524.
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