US-Mexico NAFTA talks support Mexican Peso

Mexican peso has been under pressure periodically for the last couple of years. In its recent cycle of weakness against the US dollar the currency touched 20.90 per USD in June. However, news flows on improving trade relationship with the US has changed the course of the currency over the last few weeks, despite broader US dollar strength against most emerging market currencies. The news that Mexico and US have agreed to sit together on the negotiating table to renegotiate North American Free Trade Agreement (NAFTA). The Mexico-U.S. discussion focused on crafting new rules for the automotive industry especially for car manufacturing. There are two rules being discussed which will affect the car manufacturing. First, 75% of the parts used in US and Mexican assembled vehicles must come from within North America. This is higher by 12.5%, the current level is at 62.5%. The inputs like steel, aluminium and auto parts will be required to use more local supply. Second, 40%-45% of the input that goes into the vehicle manufacturing must be made by workers earning at least $16 an hour. The announcement of a U.S.-Mexico agreement lifted financial markets and helped Canadian dollar to appreciate as well.