Trade Zone - Expect more elbows, fewer handshakes, as CUSMA talks heat up
The meeting of North American leaders at the Brookings Institution has sparked new expectations around CUSMA negotiations, indicating a more combative approach with ongoing tariffs likely. Per the full note from RBC, the consensus suggests that while a trade deal is anticipated, tariffs will remain a fixture in trade policy, particularly as Mexico is willing to negotiate concessions but Canada grapples with internal divisions. This evolving landscape underlines growing uncertainty that is already hampering investment and growth prospects across the region.
What the desk is arguing
The desk asserts that upcoming CUSMA negotiations will likely feature increased tensions over trade, with Canada's internal political climate and ongoing tariffs shaping outcomes. Per the full note from RBC, the essence of the dialogue emphasizes that while a trade agreement is probable, significant hurdles remain, particularly concerning tariff dispositions and internal political cohesion in Canada.
The RBC report highlights that uncertainties stemming from these discussions are adversely affecting investment flows, thereby slowing growth momentum in the region. Mexico's readiness to make concessions could alter the dynamics, but with Canada struggling to maintain unity, the road ahead may be fraught with complications.
Where it sits in our coverage
We currently observe a consensus target of 1.075 for USD/CAD with a range of 1.04 to 1.12 among other institutions. Specifically, firms have set targets as follows: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk's perspective aligns more closely with jpmorgan, positioning itself at the higher end of the forecast spectrum, while bofa suggests a more cautious outlook at the lower end.
How other firms see it
Firms like jpmorgan and citi are aligned with the desk's narrative, reinforcing expectations for a cautious but positive trade outcome. Conversely, bofa presents a more pessimistic view, indicating lower currency targets amidst struggling trade relations.
Relevant currency considerations can be found in the movements of USD/CAD and its interaction with Canadian employment metrics and trade balance figures. These factors will be pivotal as we navigate the implications of evolving CUSMA talks.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01A deal is expected, but tariffs are likely to remain.
- 02Mexico is open to making concessions in negotiations.
- 03Canada faces significant internal divisions impacting its stance.
- 04Ongoing uncertainty surrounding trade is pressuring investment.
Market implications
Traders should watch for continued fluctuations in USD/CAD as negotiations unfold, especially if Canada’s internal politics produce any surprising developments. Maintaining an eye on regional economic indicators will be critical as well, particularly employment data that could influence currency strength.
Risks to this view
A breakdown in negotiations or unexpected political strife within Canada could lead to a sharper reversal in forecasts. Should Mexico retract its concessions, or if trade tensions escalate further, the traded currencies might face significant reevaluation.
RBC Royal Bank View Online Dear Brian Next week, North America will cross a threshold in the Canada-U.S.-Mexico trade relationship. To assess what may come next, RBC's John Stackhouse joined policy thinkers from all three countries at a Brookings Institution roundtable this week. Here are some of his key takeaways from the discussion: 1.
There will be a deal 2. Get used to tariffs 3. Side letters will be key 4.
Mexico is willing to make concessions 5. Canada needs to manage internal divisions 6. Uncertainty is hurting investment and growth Read more on each of those takeaways in this week's edition of Trade Zone.
Plus, a look at Brexit at 10, by the numbers. Read Trade Zone We encourage you to share this message with your network and ask them to join our mailing list to get in-depth research on the big ideas that can drive Canada’s economic prosperity. - Please do not respond to this email as this inbox is not monitored. You received this email because you subscribed to RBC Thought Leadership.
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