(Bloomberg) — The dollar rebounded after posting its steepest drop in 14 months as US President Donald Trump said he may enact 25% tariffs on Mexico and Canada in February.
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Bloomberg’s dollar gauge rose as much as 0.7% in Asia Tuesday after slumping in New York trade as headlines on fresh tariffs spurred a rush to the reserve currency. The Canadian dollar and Mexican peso fell around 1% against the greenback on the news.
“If 25% tariffs on Mexico and Canada are coming, then surely bigger tariffs on China will be following shortly after,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. “The dollar has room to trade higher.”
The dollar’s surge underscores just how jittery traders are on any news around duties and their impact across the global economy. Compounding volatility were headlines Monday on how the Trump administration would hold off on implementing tariffs immediately after his inauguration, spurring whipsaws across the $7.5 trillion-a-day foreign-exchange market.
Treasury 10-year yields were down eight basis points on the day at 4.55%, after dropping as much as nine basis points earlier. The risk-sensitive Australian and New Zealand dollars also declined.
“Volatility on the back of Trump’s off-the-cuff comments will be a regular feature,” said Alvin Tan, strategist at RBC Capital Markets. “Trump likes to pontificate, but he doesn’t always follow through on his comments. But the market cannot ignore them either.”
China’s offshore yuan fell 0.3% after gaining more than 1% in New York trading as Trump had previously threatened imposing tariffs on the nation’s exports. The People’s Bank of China set the yuan reference rate at the strongest level since Nov. 8, in a sign it’s ramping up support for the currency.
“Be flexible – that’s the only thing I can think of right now,” Serena Zhou, economist with Mizuho Securities Asia Ltd., said on trading currencies. “It’s too hard trying to predict the uncertainty”, she said.
–With assistance from Jaehyun Eom.
(Updates with analyst comment in 6th paragraph.)
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