– Canada-US Trade War begins
– Risk aversion dominates overnight markets
– USD in demand across the board.
USDCAD: open1.4680 overnight range 1.4665-1.4793 close 1.4534, WTI $74.27, Gold, $2800.96
The Canadian dollar plunged in early Asian trading on Monday. USDCAD rallied to 1.4797 from Friday’s New York close of 1.4534 due to President Trump’s declaring a trade war on Canada and Mexico.
Trump issued an Executive Order slapping a 25% tariff on all Canadian imports and an additional 10% levy on energy resources. As if that weren’t enough, he expanded the existing National Emergency declaration at the southern border to include Canada. The real kicker came with a thinly veiled warning: any Canadian retaliation could prompt even harsher measures. But Canada ignored the threat and plans $150 billion in tariff retaliation
Asian equity markets took a hit, with Japan’s Topix dropping 2.45%, while concerns over tariffs on China pushed Australia’s ASX 200 down by 1.75%. European stock markets suffered heavy losses, with the German DAX sliding 1.71%. Meanwhile, S&P 500 futures declined by 1.37%, and the US 10-year Treasury yield remained stable at 4.54%.
EURUSD traded between 1.0211 and 1.0361 overnight before opening in New York at 1.0243. The euro tumbled at the start of the week as traders found themselves unprepared for an escalating trade war. Many had assumed Trump’s rhetoric was just posturing, but long EURUSD positions paid the price. His vow to impose EU tariffs worsened sentiment. A break below 1.0200 could pave the way to 0.9530, last seen during Russia’s invasion of Ukraine. Meanwhile, Eurozone Core HICP held steady at 2.7% from December.
GBPUSD bounced between 1.2249 and 1.2394 overnight before beginning the New York session at 1.2312. The pound held up relatively well against the backdrop of Trump’s tariff threats, largely due to his apparent favoritism toward the UK. While he signaled that European tariffs were imminent, he hinted that Britain might avoid them, stating, “I think that one can be worked out.” A UK government spokesperson responded optimistically, emphasizing the “fair and balanced” trade relationship between the two nations. UK Manufacturing PMI inched up to 48.3 from 48.2, though it had little market impact.
USDJPY moved within a 154.62-155.20 range before settling at 154.96 in New York. The yen remained largely unchanged despite Japan’s heavy exposure to US tariffs on Mexico and Canada. The latest Bank of Japan meeting minutes from January 24 revealed that officials discussed potential rate hikes. Additionally, Japanese Manufacturing PMI softened to 48.7 from 48.0.
AUDUSD saw a range of 0.6088 to 0.6210 overnight and opened in New York at 0.6144. The Australian dollar plunged at the Asian open but managed to recover some ground. Trump’s tariffs on China created headwinds for Australian commodity exports, leading to lower prices. On top of that, disappointing Chinese Manufacturing PMI data weighed further on the currency.
