SINGAPORE (Reuters) – The Canadian dollar (CAD) and the Mexican peso (MXN) dropped to their lowest levels in a month on Tuesday as fears of an escalating trade war dominated market sentiment, following U.S. President Donald Trump’s confirmation that 25% tariffs on goods from Canada and Mexico will go into effect.
The Canadian dollar weakened to $1.4496 early in the Asian session, having reached a one-month low of $1.45415 on Monday. Similarly, the Mexican peso declined by 0.2% to 20.7390 per dollar, marking its lowest level since February 3. These declines reflect the growing concern over the impact of tariffs on the economies of both nations.
Trump’s statement that there was “no room left” for negotiations on curbing fentanyl flows from these countries, which was the driving force behind the tariffs, intensified fears that the trade war with the U.S. could significantly disrupt the highly integrated North American economy. The tariffs are set to affect over $900 billion worth of annual imports into the U.S.
Market analysts warned of a broader impact, noting that the tariffs could be just the beginning. “The market is complacent regarding tariff impact, and this is likely just the beginning with tariffs on Europe and universal ones to follow in the coming weeks,” said Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management. He added that the tariffs will likely be inflationary and would make it difficult for the U.S. Federal Reserve to cut rates further.
In the broader foreign exchange market, the Euro (EUR) remained steady after a significant rebound the previous day. Investors remain uncertain about the outcome of the ongoing Ukraine conflict and closely watch the potential for peace talks, as well as the European Central Bank’s (ECB) policy decision later this week. ECB expectations suggest a further 25 basis point interest rate cut could be on the horizon.
Meanwhile, the U.S. dollar index (DXY), which tracks the U.S. dollar against a basket of major currencies, stood at 106.49 after dropping 1% in the previous session.
The ongoing tensions surrounding global trade and U.S. tariffs are contributing to increased inflationary pressures and could dampen consumer spending. Currency strategist Carol Kong from the Commonwealth Bank of Australia noted, “The implemented and proposed increases in U.S. tariffs will raise inflation and further weigh on consumer spending in our view.”
In other currency moves, the British pound (GBP) was largely unchanged at $1.26995, while the Japanese yen (JPY) saw a modest gain, strengthening to 148.75 per U.S. dollar. The Australian dollar (AUD) also saw a slight decline, weakening by 0.19% to $0.6213, while the New Zealand dollar (NZD) was down by 0.12%, trading at $0.5610.
Trump’s ongoing criticism of the weak yen and potential tariff actions could complicate the decision-making process for the Bank of Japan, especially as the global trade environment remains highly uncertain.
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