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

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