Following the inauguration of 47th President Donald Trump yesterday afternoon, the United States Dollar whipsawed wildly but is trading stronger against all G10 currencies than at yesterday’s close
Overview
The Buck initially sold off dramatically right as the new President took office, but swung in the other direction as Trump began to sign executive orders and paved the way for harsh tariffs against Canada and Mexico in particular. As it stands now, the Dollar has halved the initial losses it took Monday afternoon and is treading water in early trading this morning.
Last night, Trump told reporters he plans to impose 25% tariffs on Canada and Mexico by February 1st, prompting dramatic swings in FX markets. Trump’s initial lack of commentary on tariffs immediately following his inauguration drove the Dollar down against most major peers, but such an announcement later yesterday evening brought his trade policies back into heavy focus and caused quite a rebound for USD. Along with CAD and MXN, commodity currencies are leading the selloff this morning against the Buck following a more than 2% decline of oil prices overnight. Also of note in the slew of executive orders issued last night: a national emergency declaration at the Southern border, and with it an emphasis on the ‘fentanyl crisis’ which could be used as a precursor to impose the discussed tariffs on Mexico, Canada, and China. Trump ordered his office to investigate whether or not China has complied with a trade deal negotiated during his first term, and threatened tariffs of ‘up to 100%’ if China does not approve a potential sale of TikTok. During his inaugural address, Trump also called out Chinese influence over the Panama Canal specifically.
During Trump’s first term, the tariffs his administration imposed did prove to be inflationary in the US, and it’s possible that ‘Trump 2.0’ will prove to have much the same effect. As such, traders have been paring back their expectations of easing from the Federal Reserve for this calendar year for several weeks now, and that trend continues this morning. Should Trump’s trade policies prove to be as harsh as his proposals have been, it’s quite possible that the Fed may not cut interest rates at all this year, which would keep USD strong but could risk slowing the domestic economy dramatically. Markets are, however, taking all announcements made so far with a small grain of salt and appear to be waiting for real action from the fledgling administration when setting a more decisive path for the Dollar through Q1 and the rest of this year.
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What to Watch This Week…
- Bank of Japan Rate Decision, Friday
- US PMI, Friday 9:45AM
- Monex USA Online is always open
CAD ⇓
The Loonie is the biggest loser in the G10 this morning following new President Trump’s announcement that he would look to impose 25% tariffs on Canada and Mexico by February 1st. CAD, following the announcement, lost as much as 1.5% of its value against the Buck – such losses have pared off a bit now, but the currency is still nearly a percent weaker against USD compared with yesterday’s market close. Canadian inflation also was released this morning, showing prices grew less than expected last month and last year. The Bank of Canada also meets next week, and is widely expected to continue its easing cycle and cut interest rates by 25 basis points.
AUD ⇓
The Australian and New Zealand Dollars are both facing down heavier losses than many G10 peers this morning, both losing roughly half a percent of ground against USD in early trading today. As the Antipodean nations trade primarily with China over the US, any speculation of US action on trade against China his historically proven to impact their currencies fairly dramatically and this morning’s price action is no exception. Should Trump’s trade policy toward China prove to be more conciliatory than the worst projections, it’s possible AUD and NZD could see a bit of a rebound, but FX markets are positioning defensively on the currencies should harsh tariffs materialize.
