Canadian government officials say there's an increasinglikelihood U.S. President Donald Trump will give six-months' noticeto withdraw from NAFTA.

|

The officials, speaking Wednesday on condition they not beidentified, declined to say whether they now think the likelihoodof Trump following through on repeated threats to quit the pact nowexceed 50%. The loonie fell along with Mexico's peso andyields on Canada's government bonds.

|

A White House official, speaking on background, said therehasn't been any change in the president's position on NAFTA.

|

Trade relations between the two countries have taken a dramaticturn this week, with Canada escalating its trade spat with the U.S.by filing a World Trade Organization complaint over American dutiesagainst Canada and other countries. U.S. Trade RepresentativeRobert Lighthizer responded earlier Wednesday, calling that move a“broad and ill-advised attack.”

|

The odds that Bank of Canada Governor Stephen Poloz will raiseinterest rates at the meeting next week also declined on the news,to 82% from 87% Tuesday.

|

Trump withdrawing from NAFTA “was always a risk, but that riskis clearly more elevated now,” said Brian DePratto, senioreconomist at Toronto-Dominion Bank. “It's hard to gauge how muchcredibility Poloz will assign to the types of reports we're seeingtoday, but it does make it easier for him to maintain a holdingpattern.”

|

A sixth round of negotiations will begin this month inMontreal. Talks to overhaul the North American Free TradeAgreement between the U.S., Canada and Mexico began in August. Theyhave so far yielded little firm indication of whether a deal can bereached to update the pact, the officials said.

|

The Canadian dollar fell 0.9% to C$1.2574 against the greenbackat 3:05 p.m. in Toronto. The peso fell 0.8% to 19.3963 per dollar.The rate on Canada's two-year government bonds declined 8 basispoints to 1.71%. The yield on 10-year debt was down six basispoints to 2.14%, with the rate on similar-maturity U.S. Treasurieslittle changed.

|

“The market's been too complacent regarding NAFTA terminationrisk for too long,” said Bipan Rai, a Toronto-basedforeign-exchange and macro strategist at Canadian Imperial Bank ofCommerce. “Outside of the Bank of Canada meeting next week, thereshould be upward pressure on USD/CAD as that premium increases intothe next round of negotiations in Montreal beginning Jan. 23.”

|

Mexican Economy Minister Ildefonso Guajardo has said that Mexicowon't negotiate under duress and will leave the table if theU.S. initiates the withdrawal process. The Canadian officialssaid Wednesday they were not sure how Mexico would react to anywithdrawal notice but that Canada would keep negotiating after onewas given.

|

A withdrawal notice doesn't mean NAFTA would be killed — acountry can give notice and then not actually leave.

|

From: Bloomberg

|

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.

Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.

  • Critical Treasury & Risk information including in-depth analysis of treasury and finance best practices, case studies with corporate innovators, informative newsletters, educational webcasts and videos, and resources from industry leaders.
  • Exclusive discounts on ALM and Treasury & Risk events.
  • Access to other award-winning ALM websites including PropertyCasualty360.com and Law.com.
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.