The US dollar saw gains during volatile Asian trading on Tuesday following President Donald Trump’s remarks about the possibility of imposing 25% tariffs on Canada and Mexico. This led to a decline in both the Canadian dollar and the Mexican peso.
Market reactions to trade tariff concerns
The global currency market experienced significant fluctuations as concerns over potential trade tariffs influenced investor sentiment.
The dollar jumped against most major currencies after President Donald Trump said he may enact 25% tariffs on Mexico and Canada next month https://t.co/D6XETMDgqh
Market participants closely monitored developments, leading to shifts in major currency pairs and broader market trends. The dollar strengthened as traders reacted to policy uncertainty and reassessed trade risks, while other currencies faced downward pressure.
The dollar appreciated by 0.87% to 1.44346 against the Canadian dollar (USDCAD) and by 1.19% against the Mexican peso (USDMXN), as market participants reassessed trade-related risks and policy uncertainty.
The dollar index (DXY), which measures the greenback against a selection of major currencies, climbed 0.6% to 108.65. This followed a significant 1.2% decline in the previous session, marking its sharpest drop since late 2023.
Analysis of currency pairs
On the 15-minute chart, USDCAD demonstrated a strong upward movement, rising by 0.87% after rebounding from the 1.42605 support level and reaching an intraday peak of 1.45155.
USDCAD surges after rebounding from key support, with bullish momentum pushing prices toward the 1.45155 resistance level, as seen on the VT Markets app.
The short-term moving averages, with the 5-period (purple) and 10-period (yellow) crossing above the 30-period moving average (gold), indicate a bullish trend.
A sustained move above 1.44350 could pave the way for a retest of the 1.45155 resistance level, with the potential for further gains if bullish momentum continues.
USDMXN rebounds strongly, eyeing resistance at 20.80000 after bullish breakout from key support levels. Learn more on the VT Markets app.
Similarly, USDMXN advanced by 1.19%, recovering from an intraday low of 20.46024 to a high of 20.79391 after bouncing off the key support level at 20.43885.
The MACD indicator (blue) currently sits above the signal line (yellow), indicating strong bullish momentum. If the price faces rejection at resistance, a pullback towards the 20.60000 support level could occur before another upward attempt.
Broader market impact and sentiment
The euro (EURUSD) declined to 1.0364, down from an earlier peak of 1.0434, reflecting concerns about potential repercussions if Trump’s tariff measures extend to the European Union.
The Japanese yen (USDJPY) also saw moderate losses, with the dollar rising 0.3% to 156.06, recovering from a five-week low of 154.90 as attention shifted to the upcoming Bank of Japan policy decision.
Gold held an advance as Trump held off from imposing sweeping trade tariffs against China and other nations on his first day in office, which hurt the US dollar https://t.co/92LCgG4RcV
Meanwhile, the offshore Chinese yuan (USDCNH) weakened, with the dollar advancing 0.3% to 7.2847, as investors considered the likelihood of additional tariffs on China. Trump has previously hinted at imposing tariffs of up to 60% on Chinese goods, which could further influence market sentiment.
Investors are expected to closely monitor upcoming policy announcements from the Trump administration, with the scheduled tariff announcement on 1 February potentially having a significant impact on USDCAD and USDMXN movements in the near future.
Market participants should brace for continued volatility in foreign exchange markets.
