By eFXdata — Jan 31 - 01:30 PM
Synopsis:
Markets are closely watching Trump’s decision on tariffs for Canada and Mexico as a benchmark for broader trade policy. If the threat isn’t enforced by tomorrow, the USD should weaken against CAD, MXN, and other tariff-sensitive currencies like AUD, NZD, and EUR. This could reinforce the view that Trump will use tariffs as a negotiation tool rather than enforce broad trade restrictions.
Key Points:
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Trump’s Trade Policy Test:
- The USMCA tariff decision will signal Trump’s broader trade stance.
- A delay or cancellation would suggest a less aggressive approach.
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USD Reaction & FX Implications:
- If tariffs aren’t enforced: USD should depreciate against CAD, MXN, AUD, NZD, and EUR.
- If tariffs are confirmed: USD likely strengthens, with CAD & MXN most impacted.
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Investor Sentiment & Positioning:
- Markets may reassess Trump’s trade playbook, potentially reducing the risk premium in FX.
- Currencies that priced in tariff risks (EUR, AUD, NZD) could see a short-term relief rally.
Conclusion:
Trump’s tariff decision on Canada and Mexico will have global FX implications. A delay or softer stance could lead to USD weakness, while enforcement would reaffirm USD strength, particularly against CAD & MXN.
Source:
ING Research/Market Commentary