The Mexican peso rallied on Friday after comments made by U.S. Commerce Secretary Wilbur Ross suggested that the currency will likely recover as long as Mexico and the U.S. can reach a sensible agreement in regards to the North American Free Trade Agreement (NAFTA).
“The peso has fallen a lot, mainly because of the fear of what will happen with NAFTA,” Ross told CNBC on Friday morning. “I believe that if we and the Mexicans make a very sensible trade agreement, the Mexican peso will recover quite a lot.”
Right after that, the peso surged 1.9 percent, making up for its previous depreciation. “The 8.7 percent decline in the currency’s value since March 2016 has boosted the cost of imports into Mexico, while making its exports more competitive,” noted a report by Bloomberg Markets.
Ross emphasized the fact that re-negotiating NAFTA is the Trump administration’s first priority, and Mexico is the prime target of trade reforms, although there are few details yet.
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According to the Bloomberg article, NAFTA negotiations will seek to tighten the rules of origin by “dictating how many goods can come from nations outside NAFTA while still receiving the agreement’s tariff perks,” said Ross.
He also explained that efforts to update NAFTA will seek to stabilize the peso-dollar exchange rate and find ways to help Mexican workers earn better wages and achieve higher standards of living.
Ross said that facilitating U.S. exports to other countries and abolishing tariff and non-tariff barriers to trade will be the first order of business. “The other side of that will be preventing illegally subsidized goods from coming in, and really enforcing it,” he added.
H/T: Bloomberg Markets
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