Anyone who thought it was better to downplay the risk of a NAFTA collapse got a rude shock this week, when the Canadian and Mexican currencies sank against the U.S. dollar. The reason: Canadian officials said Wednesday it’s increasingly likely that U.S. President Donald Trump plans to dump the trillion-dollar trade pact.
The White House was quick to deny it. And Thursday, Canada said it’s preparing new talks related to autos, signalling a potential breakthrough in one of the biggest NAFTA sticking points.
Still, the sudden slide means implied volatility — a measure of expected swings priced in options contracts — has soared. For the Mexican peso and Canadian loonie, one-month volatility is trading near this year’s high.