AUD slammed on Trump tariffs, even though we’ve seen this movie before

President-elect Donald Trump announced via Truth Social that he intends to sign an executive order to impose a 25% tariff exports from Mexico and Canada to the US, and a further 10% on goods from China. Keeping in mind that Trump made this announcement less than 24 hours after nominating Scott Bessent as US Treasury Secretary (a man markets expected to cool Trump’s hawkish potency), the timing makes it seem though Trump wants to remind markets who is really in control.

'Trump: The Sequel' looks similar to the original

But we’ve seen this movie before. We already know from his business dealings that he bargains hard, and likes to squeeze the best out of every deal by playing hard ball with outrageous propositions. And we saw him use the threat of eye-watering tariffs during his first term to get world leaders eating out of his hand. And it worked. Once again, world leaders are queuing up to strike deals in the hope of tariff exemptions. And today’s announcement means that the ball is in the courts of China, Mexican and Canada to try and squeeze a better deal or face the wrath of high trade tariffs.

We still have just under two months until Trump begins to sign his executive orders. And that plenty of time for key officials to meet with the Trump administration and attempt to hammer out a better deal. It also leaves plenty of time for turbulence as sentiment switches on a dime, multiple times over. Just like we saw in 2016.

Regardless, traders were quick to hit the panic button, sending the USD sharply higher against the Canadian dollar, Mexican peso and Chinese yuan. USD/CAD has already exceeded its average daily range by about 80%. But with the Canadian dollar rising against the Mexican Peso, markets are assuming this will hit Mexico the hardest. The yen and Swiss franc also suck in safe-haven flows, yet gold didn’t receive the same love as it printed a fresh low after suffering its worst day in four years.

AUD/USD technical analysis

The Australian dollar fell just over 1% from its daily high and traded briefly beneath its February low, which puts it on track for its most volatile day in two weeks. And Europe is still asleep. Yet AUD/USD has already bounced from its low to recoup around half of the day’s losses. The February low clearly has some significance.

A bullish divergence has formed on the RSI (14) and the daily low has also held above the weekly S1 pivot. Yet sellers clearly lurk around the October high, and given its established downtrend on the daily chart and threat of general market turbulence, I have to conceded for now that AUD/USD bulls need to tread with caution.

For now, the bias is to fade into moves towards the October high in anticipation of a break beneath the February low. But should Trump renege on such high tariffs, a risk-on bounce could be due. And that could help AUD/USD recover above its October low and revive the multi-week low call I made yesterday.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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