Trump tariff threat roils markets: USD surges, CAD, AUD, NZD sink

Trump vows 25% tariffs on Canada, Mexico exports, additional 10% on China
USD surges, commodity currencies crunched
USD/CAD clears 1.4105; AUD/USD nears key .6441 support

Overview

Donald Trump has doubled down on his threat to impose large tariffs on major trading partners, warning one of his first executive orders will be to introduce 25% taxes on goods entering the United States from Canada or Mexico, along with additional 10% tariffs on Chinese exports.

The US dollar has surged on the headlines, reflecting that it will increase the risk of managed depreciations in other currencies to counteract the tariff charges. It also raises serious questions regarding the narrative that Trump’s treasury secretary pick, Scott Bessent, will be able to act as a voice of reason to deliver market friendly policy outcomes, including regarding tariffs.

Currencies from small, open economies with large trade sectors have been among the hardest hit, with the Canadian and New Zealand dollars hitting fresh 2024 lows . AUD/USD is also not far off.

USD/CAD hits four-year high

Source: Trading View

USD/CAD has taken out 1.4105 with ease on the headlines, rising to levels not seen since the early stages of the pandemic. Having acted as resistance previously, the break may now see it revert to support, allowing for potential long setups to be established above with a tight stop beneath for protection.

There are only minor levels before we get to the pandemic highs of 1.4668, with only 1.4260 and 1.4340 in between. They loom as initial targets. Improving the probability of long trades, MACD and RSI (14) have generated fresh bullish signals on momentum, although the latter sitting in overbought territory is a reminder to ensure risk management is at the forefront of thinking.

AUD/USD teeters above 2024 low

Source: Trading View

Even though Trump did not specifically mention Australia, as a currency pair often used as a China proxy, AUD/USD has been hammered on the headlines, leaving it teetering just above the year-to-date low of .6441 after slicing through minor support at .6480.

The momentum picture has not turned outright bearish for the Aussie, although both RSI (14) and MACD look like they may soon rollover. Keep an eye on .6441 – if the price holds the level, consider buying ahead it with a very tight stop beneath for protection. It would be preferential to see the price interact with the level first before proceeding.

Alternatively, if .6441 is broken, shorts could be established below with a very tight stop above for risk management. .6380 – the location of key uptrend support – would be the initial trade target.

NZD/USD a sell-on-rallies play

Source: Trading View

NZD/USD is another name in a world of hurt, briefly touching 2024 lows before bouncing from below .5800. The Kiwi is stuck in a downtrend with momentum entirely with the bears, ensuring the bias remains to sell rallies until given an obvious signal to do otherwise. Shorts could be established on approaches towards the downtrend with a stop above for protection. Beyond the lows set earlier today, .5774 is one potential target.

While we may see positioning tweaks in the Kiwi ahead of the RBNZ rates decision on Wednesday, as covered in a separate post last week, it’s bee the US rates outlook that has been dictating NZD/USD movements recently.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.