Trump's tough talk continues to roil FX markets

Stephen Innes SPI Asset Management

President Trump has reignited market anxieties, reaffirming his commitment to slap a hefty 25% tariff on imports from Canada and Mexico starting February 1st. Citing a cocktail of grievances, from the unchecked flow of fentanyl to substantial trade deficits, Trump's tough talk continues to roil FX markets. However, he's left traders hanging by a thread with his indecision over whether to exclude oil imports from this tariff tirade, promising a resolution shortly.

Not missing a beat, Trump also flagged an impending tariff onslaught against China, although likely much more measured than initially assumed. He pinpointed the drug and fentanyl issues. However, he stopped short of confirming a February 1st start date. This sabre-rattling has prompted vows of retaliation from Mexico and Canada, setting the stage for a potential tit-for-tat tariff war that could stifle North American and Global growth amid the hit to trade dynamics.

In the currency markets, the yuan led a broad retreat among Asian currencies, rattled by the looming shadow of Trump's tariff threats.

But here’s a tip for the nimble traders out there: keep your eyes peeled for any last-minute backpedaling by Trump on these tariffs—much like his recent reversal with Colombia. If Trump blinks, and market whisperer Howard Lutnick's hints of a pullback materialize, watch for the Canadian dollar to soar back to its November 25th levels around $1.40. That’s a swift 4-figure rally waiting to happen for those quick on the draw. So, ready your positions—this weekend could either confirm fears or fuel fortunes.

Author

Stephen Innes

SPI Asset Management

With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.

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