USD/CAD and USD/MXN Forecast: Trump Tariffs to Start this Weekend?

Trump Tariff Key Takeaways

Trump announces he will enact 25% tariffs on Canada and Mexico and increase tariffs on China by 10% effective this weekend.
Tariffs are likely to drive import prices higher, boosting inflation and potentially complicating keeping Fed interest rates higher for longer.
With Canada’s (lame duck) Prime Minister Justin Trudeau vowing to counter U.S. tariffs, retaliation may be imminent – I discuss what it means for USD/CAD and USD/MXN below.

Trump’s Tariff Bombshell

The Trump administration has officially confirmed that new tariffs will take effect on Saturday, February 1, including a 25% tariff on imports from Canada and Mexico and a 10% tariff on Chinese goods. In an official briefing, White House spokesperson Karoline Leavitt denied speculation of a delay, reinforcing that these tariffs will be implemented in full on the US’s top three trade partners, though after the events of the past week, no policy is certain until it's officially signed and enacted.

Trade War Fears and Economic Implications of Tariffs

Trump’s decision is being framed as a response to a failure to crack down on illegal immigration by Mexico and Canada (in China’s case, they’re ostensibly attributed to illegal fentanyl trafficking), but many investors believe he wants leverage to renegotiate the USMCA trade deal that replaced NAFTA in Trump’s first term.

From a broad macroeconomic perspective, tariffs are likely to drive import prices higher, boosting inflation at a time when Trump rode a wave of dissatisfaction with rising prices under Biden back into the White House. Needless to say, rising consumer costs could also complicate the Federal Reserve’s path on interest rates, potentially keeping them elevated for longer.

Tariff Response: What’s Next?

With Canada’s (lame duck) Prime Minister Justin Trudeau vowing to counter U.S. tariffs, retaliation may be imminent; notably, almost 75% of Canada’s exports go to the US, amplifying the impact on the Canadian economy.

Markets should brace for intensified trade tensions, rapid shifts or potential gaps in the USD/CAD and USD/MXN exchange rates in particular, and uncertainty that could persist well into the coming months.

Canadian Dollar Technical Analysis: USD/CAD Daily Chart

Source: TradingView, StoneX

With no hint of a phased-in approach or exemptions announced, traders are selling first and asking questions later when it comes to the Canadian dollar and Mexican peso.

USD/CAD has seen an immediate spike higher to trade above 1.4500 as we go to press, on track for its highest close since the depths of COVID in March 2020. Bulls will want to see the breakout above the 1.4475-1.4500 zone hold into next week to confirm the breakout and open the door for further gains back toward the 22-year highs near 1.4700.

Mexican Peso Technical Analysis: USD/MXN Daily Chart

Source: TradingView, StoneX

Meanwhile, the peso has yet to break out to new yearly highs, though it has erased its intraday losses to trade back above 20.70. The pair remains within an ascending triangle pattern. For the uninitiated, ascending triangle patterns indicate growing buying pressure that most often leads to a bullish breakout and continuation higher, especially if we have a clear fundamental catalyst.

If we do see a clean breakout above 20.85, there’s little in the way of technical resistance until closer to 2021 highs around 22.00.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.