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Jan 31 - 02:55 PM

ING: USD Reaction Hinges on Trump's Tariff Decision on Canada & Mexico

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:

  1. 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.
  2. 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.
  3. 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

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