Canadian Dollar Weakens Despite Ottawa Tabling USMCA Ratification

The Canadian dollar is weakening against major currencies on Tuesday, despite the federal government tabling a motion that would ratify the historic US-Mexico-Canada Agreement, or USMCA. But the loonie might be losing traction because the Bank of Canada (BOC) is not expected to raise interest rates until after the federal election in October.

Foreign Affairs Minister Chrystia Freeland tabled a ways and means motion in the House of Commons that kicks off the ratification process of the USMCA trade deal. Freeland told Parliament that she believes ratifying the new North American trade deal will happen before the June legislative deadline.

I am confident we will be successful moving forward. Of course, the entry into force of this agreement does not depend solely on Canada.

She later told reporters: “It will be interesting for us to hear from Vice-President [Mike] Pence about the US domestic ratification process.”
The USMCA requires all three trading partners to ratify the deal through their respective legislative bodies. South of the border, Republicans say that they will only support the agreement if tariffs are lifted and Democrats confirmed they will approve the USMCA if Mexico improves labor laws. Mexican, meanwhile, is inching towards bipartisan support under the new leadership of President Andrés Manuel López Obrador after the country passed legislation that increases pay of Mexican workers.
Meanwhile, the BOC will meet on Wednesday to discuss monetary policy. It is widely anticipated that the central bank will hold off on any rate hikes until after the general election in the fall — and possibly next year. Presently, the target rate sits at 1.75%.
Although the housing market has performed well in recent months, one economist predicts weakness next year. David Doyle, North American economist and Canadian markets strategist with Macquarie Group, told the Business News Network (BNN) that a wave of five-year fixed mortgage rates is about to reset and the next wave will occur when the national economy is cooling down.

Where I get more concerned about housing actually is, as we move into 2020, is that the rate reset of five-year fixed rate mortgage holders moves higher again, 75 to 80 basis points. So that for me is a risk for 2020, that potentially, there’s another bout of weakness coming for housing across the country.

If the same thing happens in 2019 and you have a subdued growth level coming through, the question is, what does that mean for 2020? And I think there are some downside risks associated with that.

The USD/CAD currency pair rose 0.37% to 1.3494, from an opening of 1.3445, at 19:05 GMT on Tuesday. The MXN/CAD jumped 0.36% to 14.229, from an opening of 14.1760

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