Canadian Dollar Strengthens on Renewed NAFTA Talks, Capped by Housing Data

The Canadian dollar is strengthening against its US counterpart on Tuesday after officials confirmed that they are extending talks to renegotiate the North American Free Trade Agreement (NAFTA). The latest reports suggest that American trade representatives are encouraging Ottawa to open up its market and modify its protectionist systems that have been in place for decades.

On Monday, Canadian Foreign Affairs Minister Chrystia Freeland met with US Trade Representative Robert Lighthizer in Washington for additional NAFTA deliberations. Both sides are eager to reach a trade deal as time is running out and President Donald Trump is getting impatient, particularly after recently reaching a bilateral trade pact with Mexico and the midterm elections being only two months away.
The sticky point appears to be supply management, a national policy that protects dairy, poultry, and egg farmers from foreign producers and regulates supply and demand through import controls and pricing mechanisms. Most Canadian politicians support supply management, especially since the beneficiaries are a major voting bloc.
Representative Tom Reed (R-NY) does not believe that Canada needs to abolish supply management completely, but it should consider looking at â€œthe bigger picture”:

It’s not necessarily it has to get rid of it but it has to realize it has to open its markets more to our dairy farmers and folks in America. We have to look at the long term. I don’t think price fixing, price control, setting prices by government fiat, is good sound policy long-term.

The dairy industry thinks otherwise, arguing that Canadian negotiators need to draw a line in the sand and refuse to accept any agreement that threatens the integrity of supply management.
David Wiens, vice president of the Dairy Farmers of Canada, told The National Post:

We’ve taken those hits for team Canada, and we are determined that there be no further concessions on dairy. We have hit a wall on this where enough is enough.

On the economic front, according to the Canada Mortgage and Housing Corporation (CMHC), housing starts fell to a seasonally-adjusted annualized rate of 200,986 units from a changed 205,571 units in July.
The loonie’s short-term direction will not be dictated by the greenback because the US is only anticipating an inflation report on Thursday.
The USD/CAD currency pair tumbled 0.3% to 1.3125, from an opening of 1.3163, at 19:36 GMT on Tuesday. The EUR/CAD shed 0.35% to 1.5208, from an opening 1.5208.

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