Synopsis:

Credit Agricole highlights four key FX implications of President Trump’s trade wars, focusing on higher volatility, EUR underperformance, pressure on AUD/NZD, and risks for CAD despite a temporary reprieve.

Key Points:

1. Increased FX Volatility:

   • The uncertainty surrounding Trump's trade policies has elevated FX volatility.
   • Markets remain on edge as Trump leverages tariffs for both economic and geopolitical goals.

2. EUR Underperformance:

   • The EUR lags G10 peers in rebounding against the USD due to the lingering threat of US tariffs on the EU.
   • Ongoing trade uncertainty could dampen sentiment for European assets.

3. AUD & NZD Pressure from US-China Tensions:

   • The ratcheting up of US-China trade tensions keeps AUD and NZD under pressure.
   • China has responded cautiously to new US tariffs, introducing countermeasures such as targeted tariffs and regulatory actions.

4. CAD Reprieve is Temporary:

   • Despite a 30-day reprieve on US tariffs in exchange for stricter border control and fentanyl crackdowns, Canada remains at risk.
   • Trump’s escalating demands could lead to renewed pressure on CAD.

Conclusion:

Trump’s trade war tactics have increased FX volatility, weakened EUR, pressured AUD/NZD, and kept CAD at risk despite temporary relief. Markets remain vulnerable to shifting trade policies and geopolitical bargaining tactics.