By Ankur Banerjee
SINGAPORE (Reuters) -The Canadian dollar and the Mexican peso fell to their lowest levels in a month on Tuesday as trade war fears became a reality after U.S. President Donald Trump followed through on his tariff threats against Canada, Mexico and China.
Trump’s new 25% tariffs on goods from Mexico and Canada took effect, along with a doubling of duties on Chinese goods to 20%, at 12:01 a.m. EST (0501 GMT).
Minutes later, China said it will impose additional tariffs of 10%-15% on certain U.S. imports from March 10.
The loonie was a touch weaker at $1.4508 in Asian hours having touched a one-month low of $1.45415 on Monday, while the Mexican peso slid over 0.5% to 20.821 per dollar, its lowest since February 3.
Corporate CEOs and economists say Trump’s tariffs on Canada and Mexico, covering more than $900 billion worth of annual U.S. imports, would deal a serious setback to the highly integrated North American economy.
The tariff moves led to a rally in U.S. Treasuries. The yield, which moves inversely to bond prices, on the benchmark 10-year U.S. Treasury note hit 4.115% in Asian hours, its lowest since October 22.
“The decision by Trump to go ahead with tariffs on Mexico and Canada has turned fear into reality,” said Vasu Menon, managing director of investment strategy at OCBC.
Menon said the tariffs will rattle markets as investors worry that the move will cause inflation expectations to rise and cause U.S. growth to slowdown as these countries make up a large part of U.S. imports.
“There is also the added risk that Canada and Mexico will retaliate and if this happens, Trump could up the ante further and cause greater anxiety.”
Canada has already said that retaliatory tariffs on the United States would take effect at 12:01 a.m.(0501 GMT) on Tuesday.
Mexican President Claudia Sheinbaum was expected to announce her response during a morning news conference in Mexico City on Tuesday, the country’s economy ministry said.
YEN AND YUAN
Trump said on Monday he told leaders of Japan and China they cannot continue to reduce the value of their currencies as doing so would be unfair to the United States.
Trump’s criticism of a weak yen and uncertainty on how his tariff threats could affect global growth may complicate the Bank of Japan’s decision on how soon to raise interest rates.
On Tuesday, the yen was stronger at 149 per dollar, hovering close to the four-month high it touched last week.
China’s yuan also held steady against the dollar, aided by the central bank continuing a strengthening bias in its daily official guidance.[CNY/]
“President Trump’s remarks on China and Japan weakening their currencies, while not true, might encourage their authorities to jawbone the currencies lower to avoid higher tariffs,” said Carol Kong, currency strategist at Commonwealth Bank of Australia.
“I think this is more likely to happen with China as it is President Trump’s number target with regards to tariffs. There is a risk the Chinese government will use a one-time yuan appreciation as a bargaining chip in negotiations with the U.S.”
China’s central bank has set its official guidance on the firmer side of market projections since mid-November, which analysts and traders see as a sign of unease over the yuan’s decline.
The euro was a tad lower at $1.04795 after a sharp rebound in the previous session as traders remain on tenterhooks in the hopes of a peace deal to end the Ukraine war, with European leaders floating proposals for a truce.
The single currency didn’t flinch after a White House official confirmed that the United States is pausing military aid to Ukraine days after Trump clashed with Ukrainian President Volodymyr Zelenskiy in the Oval Office that unnerved investors.
Investors are also keeping an eye out for the European Central Bank policy meeting on Thursday, with traders pricing in another 25 basis point cut. The ECB has cut rates five times already since last June in a nod to quickly slowing inflation.
Data on Monday showed inflation in euro zone dipped a bit less than expected last month but its most closely watched component also dropped, solidifying bets for further policy easing in the coming months.
The risk-sensitive Australian dollar was 0.19% weaker at $0.6213, while the New Zealand dollar eased 0.12% at $0.5610.
Sterling was 0.12% lower at $1.2686, while the yen was stronger at 149 per dollar, hovering close to the four-month high it touched last week.
(Reporting by Ankur Banerjee in Singapore, additional reporting by Davide Barbuscia in New YorkEditing by Shri Navaratnam and Kim Coghill)
