By Ankur Banerjee
SINGAPORE (Reuters) – The Canadian dollar and the Mexican peso hunkered near their lowest in a month on Tuesday as trade war fears sapped sentiment after U.S. President Donald Trump said 25% tariffs on goods from the two neighbouring countries will take effect on Tuesday.
The loonie was at $1.4496 in early Asian hours having touched a one-month low of $1.45415 on Monday, while the Mexican peso fell 0.2% to 20.7390 per dollar, its lowest since February 3 as traders come to terms with the tariffs.
Trump said there was “no room left” for a deal that would avert the tariffs by curbing fentanyl flows into the United States.
Corporate CEOs and economists say Trump’s tariffs on Canada and Mexico, scheduled to take effect at 12:01 a.m. EST (0501 GMT) on Tuesday, and covering more than $900 billion worth of annual U.S. imports would deal a serious setback to the highly integrated North American economy.
“The market is complacent regarding tariff impact and this is likely just the beginning with tariffs on Europe and universal ones to follow suit over the coming weeks,” said Andrzej Skiba, head of BlueBay US fixed income at RBC global asset management.
“This will be inflationary, and the Fed won’t likely be able to cut rates in this environment. This could put pressure on fixed income assets, and we see more spread widening and risk ahead.”
The euro was steady after a sharp rebound in the previous session as traders remain on tenterhooks in the hopes of a peace deal to end the Ukraine war, with European leaders floating proposals for a truce.
The single currency didn’t flinch in early trading after a White House official confirmed that the United States is pausing military aid to Ukraine days after Trump clashed with Ukrainian President Volodymyr Zelenskiy in the Oval Office that unnerved investors.
The euro last bought $1.0482 having surged over 1% on Monday, with investors also keeping an eye out for the European Central Bank policy meeting on Thursday. Traders are pricing in another 25 basis point cut from the ECB.
The ECB has cut interest rates five times already since last June in a nod to quickly slowing inflation.
Data on Monday showed inflation in euro zone dipped a bit less than expected last month but its most closely watched component also dropped, solidifying bets for further policy easing in the coming months.
The U.S. dollar index, which measures the U.S. currency versus six other units, was at 106.49 after dropping 1%in the previous session.
“The implemented and proposed increases in U.S. tariffs will raise inflation and further weigh on consumer spending in our view,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
“The upshot is we expect U.S. economic growth to slow this year which will encourage the FOMC to keep cutting interest rates. Still, we expect more upside in the USD because the global trade war will further intensify and sap risk appetite.”
Sterling was little changed at $1.26995 in early trading, while the yen was stronger at 148.75 per dollar.
Trump said on Monday he told leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.
Trump’s criticism of a weak yen and uncertainty on how his tariff threats could affect global growth may complicate the Bank of Japan’s decision on how soon to raise interest rates.
The risk-sensitive Australian dollar was 0.19% weaker at $0.6213, while the New Zealand dollar 0.12% lower at $0.5610.
(Reporting by Ankur Banerjee in Singapore, additional reporting by Davide Barbuscia in New York; Editing by Shri Navaratnam)
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