The Canadian dollar and Mexican peso hit their lowest levels in a month on Tuesday, as escalating trade tensions became reality with U.S. President Donald Trump’s decision to implement new tariffs on goods from Canada, Mexico, and China.
At 12:01 a.m. EST (0501 GMT), Trump’s 25% tariffs on imports from Mexico and Canada came into effect, alongside a doubling of duties on Chinese goods to 20%. In response, China announced it would impose additional tariffs of 10%-15% on certain U.S. imports starting March 10.
In early trading, the loonie weakened slightly to $1.4508 after reaching a one-month low of $1.45415 on Monday, while the Mexican peso dropped over 0.5% to 20.821 per dollar, its lowest point since February 3.
Corporate CEOs and economists expressed concerns that Trump’s tariffs, impacting over $900 billion in annual U.S. imports, would severely disrupt the highly integrated North American economy. The move triggered a rally in U.S. Treasuries, with the yield on the 10-year U.S. Treasury note hitting 4.115%—its lowest since October 22.
Vasu Menon, managing director of investment strategy at OCBC, commented, “The decision by Trump to go ahead with tariffs on Mexico and Canada has turned fear into reality.” He warned that the tariffs could fuel inflation expectations and slow U.S. growth, as both Canada and Mexico are major sources of U.S. imports. Menon also pointed to the potential for retaliatory actions from both nations, which could escalate tensions further.
Canada confirmed that retaliatory tariffs on U.S. goods would take effect at 12:01 a.m. (0501 GMT) Tuesday. Meanwhile, Mexican President Claudia Sheinbaum was expected to announce her country’s response during a morning news conference.
In other global developments, Trump’s criticism of Japan and China for allegedly weakening their currencies raised further concerns. On Tuesday, the yen strengthened to 149 per dollar, nearing its four-month high. China’s yuan also remained steady, supported by the central bank’s policy of a firmer yuan.
Carol Kong, currency strategist at Commonwealth Bank of Australia, remarked, “Trump’s remarks might prompt China to use a one-time yuan appreciation as a bargaining chip in tariff negotiations.”
The euro was marginally weaker at $1.04795, after a sharp rebound in the previous session, as investors remained hopeful for a peace agreement to end the Ukraine war. European leaders are exploring proposals for a truce, while a recent pause in U.S. military aid to Ukraine and the ECB’s expected policy meeting on Thursday kept market sentiment cautious.
The risk-sensitive Australian dollar was down 0.19% at $0.6213, and the New Zealand dollar eased 0.12% to $0.5610. The British pound also slipped 0.12% to $1.2686.
As trade tensions intensify, global markets remain on edge, with currency movements reflecting the uncertainty surrounding ongoing U.S. tariff decisions and potential retaliation.
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