Dollar Jumps as Trump Plans Mexico, Canada Tariffs: Markets Wrap

(Bloomberg) — The dollar rallied and Asian stocks trimmed their opening gains after US President Donald Trump said he was considering enacting previously threatened tariffs on Canada and Mexico starting next month. 

The US currency strengthened against all its Group-of-10 peers except the yen and Treasuries rose after Trump said he was planning to implement tariffs of as much as 25% on Mexico and Canada by Feb. 1. Chinese markets were whipsawed after the president opted against announcing any new Chinese tariffs on his first day in office. US stock futures were little changed.

The jitters seen in Asian trading came after US stock futures had rallied Monday when Trump had appeared to be holding off from using executive orders to impose higher global tariffs. The president plans to issue a broad memorandum that directs federal agencies to study existing trade policies and relationships with China, Canada and Mexico, the Wall Street Journal had reported. 

“The tariff respite was short lived, as expected, with the latest headline signaling that tariffs have been delayed but not averted,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “However, it seems like Canada and Mexico are in the focus but negotiation hopes are kept alive for China, suggesting China markets may still be supported.”

The Canadian dollar and Mexican peso both tumbled as much as 1.4% following Trump’s tariff threats, while Bloomberg’s dollar gauge climbed 0.7% after sliding 1.1% on Monday. US Treasury 10-year yields fell 8 basis points to 4.54%.

Investors had been on tenterhooks for the first executive orders to stem from the White House after Trump vowed to quickly implement his “America First” agenda. Since his November election victory, everything from the Australian dollar to European equities had been whipsawed on concern widespread tariffs would add to global trade frictions, while the dollar surged as the Federal Reserve turned more cautious on easing policy. 

“We’re thinking in terms of 25% on Mexico and Canada, because they’re allowing vast numbers of people,” into the country, Trump told reporters at the Oval Office. “I think we’ll do it February 1.”

The yen bucked the weakness in other Asian currencies as traders positioned for a possible Bank of Japan interest-rate hike at a policy decision due Friday.  

Trump refrained from unveiling any China-specific tariffs on his first day, instead ordering his administration to address unfair trade practices globally and investigate whether Beijing had complied with a deal signed during his first term.

“With 25% now providing an anchor point, markets will no doubt start to worry whether China, the next target on Trump’s tariff agenda, will face an even higher rate,” said Jun Rong Yeap, a market strategist at IG Asia Pte. “Looking ahead, we may still expect tariffs to be implemented with some ‘fire and fury,’ but the current dynamics may favor a more reactionary approach over a predictive one.”

In commodities, oil slid slid as traders digested a slew of pledges and executive orders from Trump including plans to boost domestic production. Bitcoin dropped for a fourth day.

Here is a selection of comments made by analysts during Asian trading:

Trump was sworn into office:

Kinger Lau, chief China equity strategist at Goldman Sachs Group Inc.:

Our base case is that the US will raise tariffs on China by 20 percentage points, but the timing is highly uncertain. If that’s the case China should be able to digest that. We think there will be some positive response by the Chinese government to soften the external headwinds as well as facilitate economic rebound from external demand to internal demand.

Fiona Lim, senior FX strategist at Malayan Banking Bhd.:

We have to monitor how he negotiates with China and how President Xi reacts. Any sign of frictional trade policies coming up will still be negative on the yuan. Should the trade negotiations drag on, yuan’s decline may be less sharp but it can also be prolonged as well

Philip McNicholas, Asia sovereign strategist at Robeco Singapore Private Ltd.:

China is clearly next in the line of fire from potential tariffs, so it could add to the upward pressure on the USD/CNH. The Canada-Mexico news has reversed the softer USD tone, but this just brings us back to the 2016-2020 period; market just has to remember its coping strategy then — that higher volatility will be the mainstay

Key events this week: 

• UK jobless claims, unemployment, Tuesday
• Canada CPI, Tuesday
• ECB President Christine Lagarde and other officials speak at Davos, Wednesday
• South Korea GDP, Thursday
• Eurozone consumer confidence, Thursday
• Trump will join the World Economic Forum for an online “dialogue”
• Japan CPI, rate decision, Friday
• India, euro area, UK PMIs, Friday
• ECB President Christine Lagarde and BlackRock CEO Larry Fink speak at Davos, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.1% as of 12:09 p.m. Tokyo time
• Nikkei 225 futures (OSE) were little changed
• Japan’s Topix was little changed
• Australia’s S&P/ASX 200 rose 0.6%
• Hong Kong’s Hang Seng rose 0.4%
• The Shanghai Composite fell 0.2%
• Euro Stoxx 50 futures fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.0390
• The Japanese yen rose 0.3% to 155.15 per dollar
• The offshore yuan fell 0.2% to 7.2791 per dollar

Cryptocurrencies

• Bitcoin was little changed at $102,487.18
• Ether fell 0.9% to $3,253.71

Bonds

• The yield on 10-year Treasuries declined nine basis points to 4.54%
• Japan’s 10-year yield declined one basis point to 1.180%
• Australia’s 10-year yield declined six basis points to 4.42%

Commodities

• West Texas Intermediate crude fell 1.5% to $76.74 a barrel
• Spot gold rose 0.5% to $2,721.76 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Marcus Wong, Qizi Sun, Matthew Burgess, Liz Capo McCormick, Abhishek Vishnoi, Georgina McKay, Winnie Hsu, Ruth Carson and Masaki Kondo.

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