The dollar rallied to cap off its best week since mid-November on President Donald Trump’s vow to unleash a first wave of tariffs on US trading partners on Saturday.
The Bloomberg Dollar Spot Index rode a five-day rally to a weekly gain of nearly 1%, while the Mexican peso and the Canadian dollar each slumped. Trump on Friday reiterated his plan to slap a 25% tariff on products from the US's neighbours.
“Larger dollar moves are likely to come to the upside if the tariffs are actually put in place,” Goldman Sachs strategists wrote in a note, adding that markets are vulnerable to “day 1 disappointment” if the tariff deadline is pushed back.
Anticipation over Trump’s tariffs — one of his signature policies — has roiled foreign currency markets this week with the Mexican peso dipping more than 2%, the worst performance in emerging markets, and the loonie dropping 1.4%.
It’s part of the worst monthly losing streak for the Canadian dollar in more than eight years.
See also: Taiwan dollar set to replace yuan as Asia’s top funding currency
“We’re getting to the point with the Canadian dollar where a lot of bad news is already priced in,” said Noel Dixon, a macro strategist at State Street. “From a risk-reward standpoint I’d start looking at shorting the US dollar versus the Canadian dollar.”
Valerie Ho, a portfolio manager at DoubleLine Capital in Los Angeles, said volatility is likely to continue plaguing the Mexican peso in the short term.
“The worst case is that tariffs are going to be multilayer and prolonged to come out,” she said. “It’s a tough environment.”
