The foreign exchange market is bracing for potential volatility as the prospect of new tariffs under President Trump's administration looms. While a 10% tariff on Canadian goods has been largely priced into the market, a 25% tariff announcement could trigger a significant shift. Analysts suggest that such a move could lead to a 6% rally in the USD/CAD exchange rate due to FX pass-through effects. The market's focus is on the timing and magnitude of these tariffs, with Trump's unpredictable announcement style adding to the uncertainty.
The USD is currently favored as a safe-haven currency amid these trade tensions, supported by positive interest rate differentials between the US and Canada. This environment creates asymmetric upside potential for long USD positions, particularly if the anticipated 25% tariffs are implemented. Conversely, the absence of tariffs or a lower-than-expected announcement could see the USD/CAD decrease by approximately 4%. The market remains on edge, awaiting clarity on the tariff situation.
As of 09:52 on January 17, the DXY stands at 109.21, reflecting the market's cautious stance amid ongoing trade discussions. The index opened at 108.93, reaching an intraday high of 109.40, as investors weigh the potential impact of tariff announcements on currency markets.