LONDON, Ontario: Canada is increasingly convinced that President Donald Trump will soon announce the United States intends to pull out of NAFTA, two government sources said, sending the Canadian and Mexican currencies lower and hurting stocks.
The comments cast further doubt on prospects for talks to modernise the trilateral North American Free Trade Agreement (NAFTA), which Trump has repeatedly threatened to abandon unless major changes are made.
Officials are due to hold a sixth and penultimate round of negotiations in Montreal from January 23-28 as time runs out to bridge major differences.
It is not certain the United States would quit NAFTA even if Trump gave the required six months’ notice, since he is not obliged to act once the deadline runs out. Notice of withdrawal could also raise opposition in Congress. One of the Canadian government sources also said later it was not certain that Trump would move against the treaty and that Ottawa was prepared for many scenarios.
But even the prospect of potential damage to the three nations’ integrated economies sparked market concerns.
Wall Street’s major stock indexes ended lower on Wednesday, partly due to those worries. The Canadian dollar weakened to its lowest this year against the greenback on Wednesday as the NAFTA concerns tempered bets that the Bank of Canada will raise interest rates next week.
Mike Archibald, associate portfolio manager at AGF Investments in Toronto, cited “a tremendous amount of uncertainty on the horizon”.
Canadian government bond prices rose across the yield curve and railway, pipeline and other trade-sensitive stocks weighed on the country’s main index. Mexico’s currency also weakened and stocks extended losses. The S&P/BM IPC stock index fell about 1.8 per cent.
“There’s been chatter in the market going into this week that it was coming up,” Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. — Reuters
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