The U.S. dollar rebounded in choppy trading Monday evening, and the Canadian dollar CADUSD-FX fell sharply, after U.S. President Donald Trump suggested the United States could impose tariffs on Canada and Mexico in the near future.
Trump said his team was thinking tariffs of around 25% could be announced on Feb. 1, but offered no other specifics in a Monday evening press conference.
The comments came as a surprise given officials had earlier in the day signalled any new tariffs would be imposed in a “measured” way, a major relief for trade-exposed currencies. A memo had merely directed agencies to investigate and remedy persistent trade deficits.
The Canadian dollar at about 9pm ET was trading at 69.26 cents US, close to where it was trading at before the reports emerged suggesting that Mr. Trump was not immediately planning a 25% tariff on Canadian imports. Those reports, led by the WSJ, Monday morning had sent the loonie to around 70 cents US, its highest since Dec. 17.
A tariff of “25% looks high as a starter, and markets reacted quickly, especially in FX”, said Shoki Omori, chief global desk strategist at Mizuho Securities in Tokyo. “I think market participants thought Trump would start with China, with say a 10-20% tariff on goods, but gradually increase.”
The U.S. dollar index bounced 0.6% to 108.65, having shed 1.2% during the North American trading day in what had been the sharpest daily loss since late 2023.
The euro fell back to $1.0364, from an early top of $1.0434. The EU runs a sizable trade surplus with the United States and has been seen as a major target for Trump’s tariffs. The dollar also added 0.3% on the Chinese yuan to 7.2847. Trump has in the past threatened China with tariffs of up to 60%.
Canada will release its latest reading on inflation Tuesday, which may keep the currency volatile. A year-over-year increase of 1.8 per cent is expected, although some economists think the number will come in even lower given the GST holiday.
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In other markets Monday evening, U.S. equity futures slid back to flat after an initial small jump.
Hong Kong stocks remained stable while the yuan held overnight gains on the lack of any immediate tariffs on China.
“At some point, we are quite certain that Trump will start to move on the tariff measures ... It’s quite clear what his intent is,” said Khoon Goh, head of Asia research at ANZ.
“The fact that he hasn’t addressed this on day one doesn’t mean that it is off the agenda. It is definitely firmly on the agenda, it’s just that we have to wait and see what shape or form he takes.”
MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.2%.
In the Treasury market, the benchmark 10-year U.S. Treasury yield pared some early losses but remained four basis points lower at 4.5682%. Yields move inversely to bond prices.
“Investors now face a new reality where sudden policy shifts and increased volatility are the norm,” said Boris Kovacevic, global macro strategist at Convera. “Trump is expected to push for trade protectionism and economic nationalism, but the key question is how aggressively he will pursue this agenda.”
In commodities, oil prices weakened after Trump announced a plan to maximize U.S. oil and gas production by declaring a national emergency.
Brent crude futures ticked up 0.06% to $80.19 a barrel but languished near more than one-week low. U.S. West Texas Intermediate crude futures sank 1.46% to $76.74 per barrel from Friday’s close. There was no settlement on Jan. 20 due to the U.S. public holiday.
Spot gold gained 0.14% to $2,712.20 an ounce.
Reuters, Globe staff